Saving for retirement: How much is enough?

To make sure you enjoy your retirement without financial worries, you should ensure you have enough money saved based on your own unique situation.

I’ve always been a saver, but as I approach retirement, I have no idea if I’ve saved enough. How much is reasonable?

How much money do you need to retire? That question seems to be the main topic in physician lounges around the country. Many use online tools; others simply make a guess based on what colleagues or relatives have done or what they have read in various financial periodicals. Unfortunately, what they don’t realize is that the calculation needs to be based on their own particular situation, and no general guideline fits all.

To make sure you enjoy your retirement without financial worries, you should ensure you have enough money saved based on your own unique situation. A variety of factors affect your answer, and inaccurate estimates for any factor can leave you with way too little in savings. Some of the more significant factors to focus on include:

Retirement income needs. You can find various rules of thumb indicating you need anywhere from 60% to more than 100% of your pre-retirement income. On the surface, it seems like you should need less than that higher amount.

Joel M. Blau, CFPBut look carefully at your current expenses and how you plan to spend your retirement before deciding how much you'll need. If you pay off your mortgage, stay in good health, live in a city with a low cost of living, and engage in inexpensive hobbies, then you might get by with less than 100% of your income. However, if you travel extensively, pay for health insurance, and maintain significant debt levels, even 100% of your income may not be enough. You need to take a close look at your expenses and planned retirement activities to come up with a reasonable estimate.

Retirement age. When you retire determines how long you have to save and how long investment returns can compound. Many physicians would like to retire before age 65, but that typically requires significant personal savings. You want to be sure your retirement savings and other income sources, such as Social Security and pension benefits, will support you for what could be a very lengthy retirement. Even reducing or extending your retirement age by a couple of years can significantly affect the ultimate amount you need.

Life expectancy. Most people consider the average life expectancy when estimating the length of their retirement. But an average life expectancy means you have a 50% chance of living beyond that age and a 50% chance of dying before that age. Since you can't be sure which will apply to you, it's typically better to assume you'll live at least a few years past the average. When deciding how many years to add, consider your own health as well as how long other family members have lived.

Next: Rate of return

Rate of return. A few years ago, many retirement plans were calculated using fairly high rates of return. At a minimum, make sure your expectations are based on average returns over a very long period. You might even want to be more conservative, assuming a rate of return lower than long-term averages suggest. Even a small difference in your estimated and actual rate of return can make a big difference in your ultimate savings.

Inflation. Even modest levels of inflation can significantly impact the purchasing power of your money over long time periods. For instance, after 30 years of just 2% inflation, your portfolio's purchasing power will decline by 45%. When estimating an inflation figure, don't just look at the historically low inflation rates from the recent past. Also consider long-term inflation rates, since your retirement could last for decades.

Retirement tax rate. Especially if you save significant amounts in tax-deferred investments that will be taxable when withdrawn, your tax rate can significantly affect the amount you'll have available for spending. You may find your tax rate is the same or higher after retirement.

As you can see, there is no simple or universal answer to the retirement feasibility question. Many factors have to be examined. Your financial adviser should be able to assist and give you the direction needed to attain the ultimate goal of a successful retirement.

I have completed my estate plan, but what is the best way to let my family know where my assets are?

To ensure that your own assets will be more easily located after death, it's a good idea to prepare a postmortem letter. This is a document you can prepare yourself to tell executors and heirs where everything is located to carry out your instructions. You can write it yourself and place it with your will. The key will be to let your family know where those important papers are kept.