Retirement planning is like preparing for a long journey—one where the route isn’t always clear, and the destination is a bit uncertain. As an advisor, you’re not just helping clients avoid pitfalls like running out of money; you’re also guiding them to fully enjoy the trip. It’s not just about having enough gas in the tank; it’s about making sure they’re not so focused on conserving fuel that they miss out on the scenic routes. With many clients worried about undersaving, it’s just as important to ensure they’re not underspending, so they can truly enjoy the retirement years they’ve worked so hard to reach.
The idea of planning retirement brings many feelings for clients, ranging from excitement to dread, confusion, and overwhelm. One recent survey found that 56% of Americans feel behind on saving for retirement, especially as the cost of living increases and the future of government programs is uncertain. This leaves future retirees with the very real risk of saving but not having enough.
Now, let’s explore how much clients really need to save to ensure they can both live comfortably and make the most of their retirement.
Retirement Costs Are Rising
The cost of retirement is increasing, but the current average in the U.S. for retirement expenses is $835,453 for 25 years and $1,003,548 for 30 years. In total, most experts recommend clients save 8–10 times their annual salary for retirement.
What does that look like in the years leading up to retirement? The generally accepted rule is that people should save at least 15% of their pre-tax yearly salary for retirement, including employer contributions.
Considerations That Change Retirement Savings
Like most financial recommendations, no single dollar amount or formula will work for everyone. The basic guidelines are just that: guidelines. Many other factors contribute to how much someone needs to save for retirement.
As you work with clients planning for retirement, consider these factors.
- Lifestyle: How does your client plan to live in retirement? A client with plans to live more luxuriously and travel must save more than someone who lives more simply. To calculate this, clients can consider their current everyday living expenses and calculate the total for their retirement years while also adding plans for any major lifestyle changes or goals for their retirement years.
- Location: The cost of living impacts retirement savings. For example, a 25-year retirement in Hawaii costs more than $2 million, while a similar retirement in West Virginia costs less than $700,000. Consider a client’s location and living situation in their retirement plan.
- Age: The average retirement age in the U.S. is 65 for men and 63 for women, meaning most people live for 10–20 years after retirement. However, clients who plan to retire early will need to save more because they have more retirement years to fill. Conversely, clients who plan to work past the standard retirement age (even part-time) may not have to save as much because they don’t have as many retirement years to fund.
- Life expectancy. Similarly, consider the life expectancy of your clients. They may not need to save as much if they have health issues or chronic conditions that limit their lifespan. However, it’s generally recommended to over-save, especially for clients who don’t know how long they will live.
- Resources: In addition to savings and retirement accounts, many clients have other financial resources they can tap into in retirement, including health insurance, long-term care insurance, annuity products, properties, and other passive income sources. These resources may lower the amount clients need to save before retirement or provide continual income after retirement.
Time Matters
While the total cost needed to retire comfortably may be the same whether a client is 30 years from retirement or 5, one of the most impactful factors in retirement savings is time.
People who start saving for retirement earlier can save a much smaller portion of their annual pay because they have time for that money to grow through interest and investments. That’s one of the reasons many younger Americans are starting to save for retirement earlier. Gen Z, born between 1997 and 2012, is investing earlier than other generations, with 66% already saving for retirement.
The biggest benefit of starting to save for retirement earlier is spreading out the investment, meaning investors are putting in less money but doing it for longer. Over time, they may be investing or saving the same amount of money but saving less per month by starting earlier.
Above all, helping clients save for retirement requires honest, transparent conversations with your clients to give them realistic expectations of what it will take to reach their goals.
Consistent engagement with your clients doesn’t just elevate your level of customer service—it also uncovers their deepest needs and desires, allowing you to provide more personalized and impactful advice. To ensure you stay connected with your clients throughout their entire retirement journey, consider using PreciseFP. This powerful tool streamlines data collection and management, freeing you up to focus on what truly matters: building relationships and guiding clients to achieve their retirement dreams. Start a free trial today and see how PreciseFP can transform the way you engage with your clients.
