It’s not easy to predict how much money you’ll need to thrive in retirement.
After all, every person is different, with different lifestyles and goals. Plus, we all have expenses including housing costs, insurance costs, food, and health to consider.
Key Points About This Article
- Before retiring, assess what’s in your retirement accounts with an advisor.
- Two, according to finance coach, Suze Orman, have at least two to three years’ worth of living expenses in an easy to access account in retirement.
- Three, Orman says you should never rely on your 401(l) or IRA.
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One thing you will want to do before retiring is to assess what’s in your retirement accounts.
Two, according to finance coach, Suze Orman, have at least two to three years’ worth of living expenses in an easy to access account in retirement. “If you really wanna be on the safe side, it’s five years,” Orman said. “If you wanna just play it so that you have at least three years, okay, you can do that, as well. Maybe you split it and you do four years.”
Three, Orman says you should never rely on your 401(l) or IRA. That’s because “It’s not always that stocks go down and bonds go up, or bonds go down and therefore stocks go up. Sometimes everything can go down,” Orman said, as quoted by Moneywise.
That’s for retirement.
For emergencies, Orman says you should have at least eight months of expenses saved
For years, financial pundits have argued you should have money in a savings account earmarked for emergencies. That way, if you lose your job, worst case scenario, you’ll have access to money to cover your expenses.
Those pundits also argue that you should have at least three to six months of expenses saved at any time. However, as Suze Orman learned in the wake of the pandemic, you should have at least eight months of expenses saved to comfortably get by.
For example, let’s say you were involved in a terrible accident and you can’t work. Unless you have a catastrophic insurance policy, you and your family should have at least eight months’ worth of living expenses saved through that rough period.
If you don’t have eight months saved, there is a solution.
For many of us, saving eight months of expenses is easier said than done.
If you can’t swing that, start small with an emergency savings goal of at least $1,000. Sure, it’s small but it’s a safety net, and it’s a start. In fact, if you can put away about $85 a month, you’ll reach that goal and have some wiggle room.
However, be sure to store this in a separate “don’t touch” account, automatically depositing money every time you’re paid. Plus, if you ever receive another source of income, such as a bonus or a gift, put it directly into that “don’t touch” account instead of spending it immediately.
In addition, consider a high-yield savings account. Put money into money market funds, with guidance from a trusted financial advisor. And, if you’re ok locking your money away for a big, there’s also the certificates of deposit (COD), which offer higher fixed interest rates.
You may even want to automate your savings. Set up a recurring transfer from your checking account to your savings. That way you’re actively doing it without having to pay much attention to it. This can help you build a nest egg.
Or, look at your current spending habits to save.
Trim your discretionary expenses if they’re too high.
For example, how often do you go out to eat as compared to saving a few dollars and a few calories by making meals at home? How often are you grabbing drinks with friends? Perhaps you have subscriptions you could live without for a while. Sure, you should have fun and live life to the fullest with your money, too. But maybe cut back here and there.
In short, if you’re financially unprepared, a medical emergency, car issues, or even job loss can wipe out your finances. That’s why it’s safer to have money stashed away should any of those things happen.
As many of us know, emergencies often happen at the worst times.
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