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Estimates of the amount of money needed for retirement vary by source but one thing is clear no matter which formula you use – it is a LOT. In fact, it is so much money that many people have absolutely no hope of ever saving and investing enough. That’s right – NO HOPE. But wait! There actually IS hope!
While retirement calculations have a place, they are certainly not the final word. With estimates ranging from “Well, maybe I can save that much…” to “Are you kidding me? I might as well die young!” it can be unnerving to contemplate the future. The reality is that many people will never be able to save what the estimates project is required for retirement. So where is the hope?
The fact is that how much money you actually NEED in retirement depends on just one thing – how much your expenses are. It’s as simple as that…really! If you have few expenses, you won’t need much money. Would it be nice to have extra cash? Of course. But we’re talking about needs here, not wants.
Needs vs. Wants 101
All a person really needs is air, water, food, and maybe shelter, depending on the environment. Everything else is optional. Think about that for just a minute. For personal survival, everything but air, water, food, and maybe shelter, is optional.
Now consider that meeting true needs is relatively cheap or even free. Let’s start with air. Although the quality can vary based on locale, it’s free. What about water? Some places free, some places not – but you can usually get a free drink of water from a fountain or faucet, even if someone else paid to have the water delivered. Again, quality varies by locale. And food and shelter? Well, these are a little more complicated but it needn’t be expensive to provide the basics.
The Key To Having Enough For Retirement
Cutting expenses to a minimum is the key to having enough money during retirement. Remember – if you don’t have expenses, you don’t need money. Shelter, health care and food are the big three when it comes to necessary expenses for retirees. Consider how you can reduce costs in these areas.
Start with shelter, which is usually the biggest day-to-day necessary expense. What can you do now to ensure that your housing is affordable after you retire? Pay off your mortgage? Relocate? Downsize? There is no right answer here and a lot depends on whether you’re close to retirement or just thinking ahead. Keep in mind that your retirement “home” doesn’t have to be a house or apartment – it could be an RV, a single room, or even a yurt. The idea is to start brainstorming how to meet your shelter needs with minimal expense.
Another huge expense for many retirees is health care. Although it’s not included in the necessities listed above, over time, health care may take the largest bite out of your retirement budget. The key to minimizing health care expenses is to stay healthy. And start NOW. Don’t wait until retirement or it may be too late. Think about what you need to do to improve your health. Are you overweight? Lose a few pounds. Do you smoke? Quit. Are you out of shape? Start exercising. Easier said than done, I know, but right now is the time to take action to avoid unnecessary health care expenses in later years.
Food is the necessity that allows you the most control day-to-day over costs. To cut expenses, consider whether you can grow some of our own food or barter with folks who do. Shop the sales and stick to the perimeter of the grocery store to find basic fare such as fresh produce, meat and dairy products. Cook and bake from scratch rather than buying expensive packaged foods. Use leftovers in another meal rather than throwing food away.
Fewer Expenses Equals Freedom
But isn’t the point of retirement to enjoy life? How can you enjoy anything when barely getting by financially? Please be clear – I’m not suggesting that bare subsistence living is desirable – in fact, quite the contrary. The point is that the less money you need to live, the freer you are – free from worry, free to enjoy the life that you create.
The bottom line is that needing less to cover your basic expenses provides a level of security and peace of mind that cannot be bought at any price. In addition, the less money you need to meet those basic expenses, the easier it is for you handle a decrease in income or spending power due to factors outside your control, such as a market downturn or inflation.
So How Much Money Do You Really Need?
As you can now clearly see, the answer to how much money you really NEED for retirement ultimately depends on your expenses. If your monthly expenses exceed your available income, it doesn’t matter how much that income is – you’re in the red. If your income exceeds expenses, however, you have the freedom and luxury of choosing how you maximize your enjoyment of your available time and money.