Joe Bomar, 51, of San Francisco, Calif., has a clear vision of what retirement will mean for him. He has also calculated exactly how much he needs to save to achieve his retirement goals. Here are six things on his retirement planning checklist.
Live near family. Bomar doesn't have children. Family for him includes his wife, a sister who also lives in San Francisco, and his parents who live in Scottsdale, Ariz. He plans to either stay put or move to Arizona when he retires.
Sell his car. Bomar is likely to be able to get by without a car in San Francisco, where the extensive public transit system will help him get around and save money. It might be tougher to go carless in Scottsdale. However, if Bomar lives in the same retirement community as his parents he may be able to live without a vehicle there as well.
Be with friends. Bomar has friends all over the world, but two large groups of them are concentrated in San Francisco and Tokyo. If he decides to move to Japan, he would be giving up the dream of living close to his family. So far, San Francisco is still winning out.
Garden. Bomar and his wife, Linda, love gardening and they both want to spend the mornings of their retired life in their garden. San Francisco provides the best environment for gardening out of his few choices.
Travel once a year for a week. Bomar estimates that his travel plans would cost close to $3,000 for the week in today's dollars, even with his love for budget travel. While not cheap, Bomar feels strongly that his retirement must include some travel.
Have $5,000 a month in income. Bomar expects to be able to pay off his house and be debt free by the time he retires. He has a good idea of what he wants to do on a daily basis and where he plans to live, so he can predict with pretty good accuracy that he needs $5,000 a month to live the life he wants. This pays for living in San Francisco, public transportation, all his expenses including medical costs, and the $3,000 in yearly travel costs.
If he starts taking Social Security at 62, he will get $1,782 per month in benefits. Therefore, he needs his investments to provide him with $3,218 in income, or $38,616 a year. By using the 4 percent withdraw rule, they would need $965,400 to cover their annual expenses.
Fortunately, both Joe and Linda have been savers throughout their careers and don’t waste money on things they don't need. At age 51, they already have close to $500,000 in retirement assets. Since they don't need to be ultra aggressive with their investments in order to meet their goals, they plan to build a portfolio with 70 percent bonds and 30 percent stocks, which historically have given them 7.2 percent growth annually. This allocation allows them to achieve the required amount of money even if they don't contribute one more penny in 10 years. However, they plan to continue adding more money to their nest egg to account for inflation, since a 3 percent inflation rate will, in effect, trim their growth to about 4 percent annually. Therefore, they plan to contribute $1,200 to their retirement savings each month and re-evaluate in 3 years.
You need to know what you want to do in retirement to come up with a reliable savings goal. Planning out an enjoyable retirement can also motivate you to save for the future.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.