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How Much Money Do You Need for a Comfortable Retirement?

Experts say $1 million may not be enough

By Deborah Jeanne Sergeant

It may be time to set aside the notion that saving $1 million for retirement means you’re all set and will have no more money worries.

In light of soaring inflation, $1 million could be far too little for many people. But many factors help decide how much is “enough” when it comes to retirement funds.

Do your retirement plans include travel? And what type of travel? Do you plan to help the grandkids through college? Have you included what you will need for rising medical expenses as you age?

Or will your expenses decrease because you plan to move into a smaller home and you no longer need to travel and dress up for work?

So how much will you need to retire?

“The needed amount depends primarily upon the lifestyle expectations of the individual or couple involved and their other income sources in retirement,” said Randy L. Zeigler, certified financial planner, chartered financial consultant and private wealth adviser with Ameriprise Financial Services in Oswego. “There is certainly no one right answer to this question. A couple who both have earned NYS pensions and sizable Social Security benefits due to having had a double income prior to retirement often need much less accumulated capital to support a comfortable retirement lifestyle than someone who worked for a small business that had no retirement plan for its employees.”

In addition, the individual’s life expectancy, health and desire to work or not work matter a lot.

“People who choose to retire at earlier ages — say 55 or 57 and before being eligible for Social Security income — and do not wish to rely upon work income after they retire (i.e. by pursuing a second career or part-time type of job) will often require much larger capital bases than someone who retires at age 67, Social Security’s normal retirement age for most,” Zeigler said. “So cash flow forms help to document desired lifestyle need and then a clear analysis can be completed to compare needs to available income sources. Inflation must always be taken into account in this analysis since the purchasing power of a fixed pension will decline over time as inflation increases consumer prices over one’s lifetime.”

The $1 million goal sounds tidy, like saying we need to drink eight glasses of water a day or take 10,000 steps. But like with these health goals, $1 million isn’t the right answer for every would-be retiree.

“Not one size fits all,” said Terri Krueger, chartered financial consultant, senior financial adviser and owner of Krueger Advisors, LLC in Syracuse. “It could be $1 million, depending on their lifestyle. It could be $500,000 or $5 million.”

Krueger noted that timing also matters, as people who retire younger will naturally require more money for retiring as they will likely spend more of their lives spending and fewer of their years earning.

Krueger also said that upcoming changes in law will affect retirement. Unless the president continues them, the Trump-era Tax Cuts and Jobs Act is slated to end in 2025.

“You could have some surprises coming up in regard to increased taxes,” Krueger said. “Increased taxes whittle away at retirement funds. High net worth earners — anyone making $200,000 a year or more — will start to feel the effects of new tax laws as Congress makes them. The gloves are off when the TCJA sunsets.”

Krueger listed saving money only in a bank as one of the largest mistakes people make regarding retirement.

“Any interest rate paid on a non qualified or non-IRA account is taxed as ordinary income,” she explained. “If you earn 5% and you’re taxed 28% on that gain, you’ve not taken care of inflation. Funds held in an investment account held after 12 months are paid out at a capital gains rate, which could be lowered by capital losses within the same withdrawal. Therefore, your 8% return in the market is far greater than a fixed rate at a bank due to the tax implications.”

She encourages anyone concerned about tax implications or who is undergoing any retirement or financial planning to work with a financial adviser who can look at their specific financial situation.

Cynthia Scott, a chartered financial consultant and founder and president of OMC Financial Services, Ltd. in DeWitt, also doesn’t adhere to a hard-and-fast rule about a dollar amount goal for retirement.

“Unfortunately, the majority of people are not saving enough and will not have enough for retirement,” she said. “As to the amount, it depends on if you have a pension, how much your Social Security is and if you’ve money outside of whatever retirement vehicle you’re using. All of those things come into play.”

Her firm advises clients to withdraw from their retirement investments only 5% each year once they retire so that the funds will continue to grow. Withdrawing more would mean the fund would not have a sufficient level to grow. For someone with $1 million, a 5% withdrawal would be $50,000 withdrawn annually.

“With Social Security and a pension, it might be enough to live on,” she said.

She encourages people to review their plan annually to evaluate whether they’re on track or coming up short.