Winning Financially in 2025: Setting Yourself Up For Retirement
In this episode of the Money Rehab podcast, Nicole Lapin breaks down retirement savings goals into three lifestyle tiers: "Rich Enough" for essential needs, "Pretty Rich" for a comfortable lifestyle, and "Super Rich" for financial freedom. She shares calculations on the annual spending required for each tier and the corresponding total savings targets.
Lapin guides listeners through estimating their retirement expenses across categories like housing, dining, and luxuries. The episode provides a framework for determining your desired lifestyle and the savings needed to sustain it for 20-30 years. Whether aiming for modest means or high-end indulgences, this episode offers insights on planning for a secure retirement.
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Retirement Goals: Wealth Levels
When planning for retirement, a key consideration is the lifestyle you aim to sustain and the corresponding spending required, according to retirement experts.
Three Lifestyle Tiers
1. "Rich Enough" for Essential Needs
This "brown rice and beans" level covers basic necessities like housing and food - calculated at around $30,000 annually, requiring $600,000 saved for 20 years of retirement.
2. "Pretty Rich" for Comfort
The "pretty rich" tier allows you to maintain your current lifestyle plus some extras like dining out, calculated at $67,000 per year - the U.S. average income.
3. "Super Rich" for Luxury
The "super rich" level eliminates money constraints, enabling extravagant spending. Aspiring to $100,000 of annual luxuries would require around $2 million in retirement savings.
Calculating Annual Expenses
Estimating retirement expenses starts by categorizing needs as essential or discretionary across the three lifestyle tiers:
- "Rich Enough" covers necessities like housing, food, and utilities.
- "Pretty Rich" adds discretionary comforts like dining and entertainment.
- "Super Rich" encompasses high-end indulgences like vacation homes and yachts.
Total Savings Targets
Financial advisors recommend calculating total retirement savings by multiplying your desired annual budget by 20-30 years of expected retirement:
- For a "Pretty Rich" lifestyle at $67,000/year, target savings is around $1.2 million.
- For a "Super Rich" life spending $100,000/year, the recommended savings goal is $2 million.
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Counterarguments
- The categorization into "Rich Enough," "Pretty Rich," and "Super Rich" may oversimplify the diversity of retirement goals and lifestyles; people's needs and desires are highly individual and may not fit neatly into these tiers.
- The annual expenses for each tier are generalized and may not accurately reflect the cost of living in different areas or account for inflation over time.
- The assumption that $30,000 annually is sufficient for basic necessities may not hold true for everyone, especially in high-cost-of-living areas or for those with specific medical or personal needs.
- The calculation of required savings does not take into account other potential sources of retirement income, such as social security, pensions, or part-time work.
- The recommendation to multiply the desired annual budget by 20-30 years may not be suitable for everyone, as life expectancy and health can vary greatly, and some may need to plan for a longer or shorter retirement.
- The text does not address the risk of investment returns varying over time, which can significantly impact the actual savings needed for retirement.
- The focus on savings targets does not consider the importance of how the savings are invested, which can greatly affect the growth of retirement funds.
- The "Super Rich" lifestyle description may perpetuate a materialistic view of success and happiness in retirement, which may not align with everyone's values or lead to fulfillment.
- The text does not discuss the potential need for long-term care, which can be a significant expense and may require additional savings or insurance planning.
- The savings goals provided do not account for taxes, which can substantially reduce the net amount available for spending in retirement.
Actionables
- Create a personalized retirement vision board to visualize your desired lifestyle tier and associated activities, using images and phrases that represent your goals for housing, travel, dining, and other luxuries you aspire to enjoy.
- This helps you to internalize your retirement aspirations and can serve as a daily reminder of what you're working towards. For example, if you aim for the "Pretty Rich" tier, include pictures of your ideal home, restaurants you'd like to frequent, and travel destinations you wish to visit.
- Develop a "Retirement Lifestyle Calculator" spreadsheet to estimate your future expenses based on your current spending habits and desired tier.
- Input your current monthly expenses, adjust for inflation, and add line items for the extras you'd like in retirement. For instance, if you currently spend $3,000 a month but want to dine out more and travel in retirement, you might add $1,000 for dining and $1,500 for travel to simulate the "Pretty Rich" tier.
- Start a "Retirement Savings Challenge" with friends or family where each person sets a realistic savings goal based on their desired lifestyle tier and tracks their progress monthly.
- This creates accountability and motivation through friendly competition. If your goal is the "Rich Enough" tier, challenge each other to save a certain percentage of your income each month and share creative ways to cut costs or increase income to meet your $600,000 target.
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Retirement Goals: Wealth Levels (Rich, Pretty Rich, Super Rich)
Planning for retirement often involves determining the lifestyle you aspire to and the level of spending you anticipate. Understanding these elements can help guide how much you'll need to save and invest.
Determining Your Retirement Lifestyle and Spending Levels
When preparing for retirement, it's crucial to consider the lifestyle you wish to maintain and the corresponding level of spending. Here are three distinct levels to consider in aligning your retirement goals with your financial planning.
Outlining an Essential "Rich Enough" Lifestyle
The "rich enough" level corresponds to covering "super basic expenses," akin to a "brown rice and beans diet." At this level, your retirement income meets your needs without any frills, ensuring you have enough to live on and cover essential costs.
"A 'Rich' Lifestyle: Maintaining Your Standard Of Living"
A step above "rich enough" is the "pretty rich life," which allows you to maintain your current lifestyle with added comfort. This might include the capacity for occasional splurges such as dining out or making purchases for enjoyment. It represents a balance between managing a budget and enjoying the pleasures of life, without excessive extravagance.
"Envisioning a Luxury Lifestyle With Discretionary Spending"
The "super rich" l ...
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Retirement Goals: Wealth Levels (Rich, Pretty Rich, Super Rich)
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Counterarguments
- The categorization into "Rich Enough," "Pretty Rich," and "Super Rich" may oversimplify the spectrum of retirement lifestyles and financial needs, which can vary widely based on individual circumstances, preferences, and values.
- The text assumes that a higher level of wealth correlates with a better retirement lifestyle, which may not always be the case, as happiness and fulfillment in retirement can also depend on non-financial factors such as health, relationships, and personal interests.
- The concept of "Rich Enough" focusing on a "brown rice and beans diet" could be perceived as overly simplistic and potentially dismissive of the genuine financial struggles some retirees face, even at a basic level.
- The "Pretty Rich" and "Super Rich" categories may inadvertently glorify wealth and materialism, which could be seen as promoting an unhealthy focus on financial status rather than overall well-being in retirement.
- The text does not address the potential for unexpected events or changes in circumstances that could impact one's retirement savings and spending, such as health emergencies, inflation, or market volatility.
- The idea of setting retirement goals based on wealth levels may not be applicable or realistic for everyone, especially those who may not have the means to achieve even the "Rich Enough" lev ...
Actionables
- Create a vision board to visually map out your desired retirement lifestyle, using images and phrases that represent your "Rich Enough," "Pretty Rich," or "Super Rich" aspirations. This can help you internalize your goals and serve as a daily reminder of what you're working towards. For example, if you're aiming for the "Pretty Rich" level, include pictures of travel destinations you'd like to visit or hobbies you want to pursue.
- Start a retirement journal where you document your anticipated monthly expenses for each wealth level. Break down costs into categories such as housing, food, healthcare, and leisure activities. This exercise will give you a clearer picture of your financial needs and help you adjust your savings plan accordingly. For instance, if you're targeting the "Super Rich" level, you might include entries for luxury items or services you wish to afford.
- Use a financial app that allows you to create separate savings goals ...
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Calculating Annual Retirement Expenses for Each Lifestyle Goal
Retirement planning is crucial, and estimating your expenses depending on the lifestyle you aim for can help set realistic savings targets. Here's how you might calculate your annual retirement expenses according to three different lifestyle goals.
Estimating Annual Expenses for Each Retirement Lifestyle
To plan accurately, you'll need to differentiate between essential and discretionary expenses across three tiers of retirement lifestyles: "Rich Enough," "Pretty Rich," and "Super Rich."
Essential Monthly Expenses for "Rich Enough" Annual Budget
The "Rich Enough" retirement lifestyle is about covering basic essentials. To estimate this annual budget, tally all necessary monthly expenses such as housing, food, and utilities. Basing this off the average American's essential needs, with a life expectancy of 20 years post-retirement, the calculation comes to approximately $30,000 a year. Consequently, to live the "Rich Enough" lifestyle, you'd need around $600,000 saved for retirement.
Discretionary Expenses in "Pretty Rich" Budget
For a "Pretty Rich" lifestyle, start with the "Rich Enough" base then layer on discretionary expenses that make life more enjoyable, such as dining out, gym memberships, and entertainment. For this example, the target annual spending is at $67,000, equivalent to the average salary in the United States. This lifestyle offers comforts beyond the bare necessities but remains within a more ...
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Calculating Annual Retirement Expenses for Each Lifestyle Goal
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Clarifications
- The tiers of retirement lifestyles - "Rich Enough," "Pretty Rich," and "Super Rich" - represent different levels of financial comfort and luxury that individuals may aim for in retirement. "Rich Enough" focuses on covering basic essentials, "Pretty Rich" includes additional discretionary expenses for a more comfortable lifestyle, and "Super Rich" encompasses the most lavish and extravagant spending, including high-end luxuries and indulgences. These tiers help individuals set realistic savings targets based on the lifestyle they aspire to have during retirement.
- The specific annual expense amounts associated with each lifestyle tier are estimated as follows: "Rich Enough" lifestyle requires around $30,000 per year, "Pretty Rich" lifestyle aims for $67,000 annually, and "Super Rich" lifestyle targets an annual spending of $100,000. These amounts are calculated based on different levels of essential and discretionary expenses to reflect varying retirement lifestyle goals.
- The required retirement savings are calculated based on estimating annual expenses for different retirement lifestyles. The "Rich Enough" lifestyle requires saving enough to cover essential monthly expenses. The "Pretty Rich" lifestyle adds discretionary expenses to the essential budget. The "Super Rich" lifestyle includes high-end expenses on top of the ...
Counterarguments
- The estimate of $30,000 annually for the "Rich Enough" lifestyle may not account for regional cost-of-living variations, healthcare inflation, or unexpected expenses.
- The assumption that $600,000 saved is sufficient for the "Rich Enough" lifestyle does not consider individual life expectancy, investment returns, or inflation rates.
- The "Pretty Rich" lifestyle's target annual spending of $67,000 may not be representative of the average American's discretionary spending and could be higher or lower depending on personal choices and circumstances.
- The "Super Rich" lifestyle budget of $2 million may not accurately reflect the actual costs of maintaining luxury items like yachts and vacation homes, which can vary greatly.
- The text does not address the potential need for long-term care, which can significantly increase retirement expenses.
- The categorization of lifestyles into "Rich Enough," "Pretty Rich," and "Super Rich" may oversimplify the spectrum of retirement experiences and does not account for those who may not fit neatly into these categories.
- The text assumes a linear relationship between lifestyle tiers and expenses without considering how some costs, such as healthcare, may disproportionately affect those with lower retirement savings.
- The te ...
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Retirement Savings Target Based On Lifestyle and Longevity
Planning for retirement involves calculating how much money you need to save in order to sustain your desired lifestyle throughout your non-working years. The length of retirement and the lifestyle you aspire to maintain are two critical factors in determining your retirement savings target.
Projecting Total Savings Needed to Fund Desired Lifestyle
Multiplying Annual Budget By 20-30 Years of Retirement
To estimate the total savings required for retirement, you should start by multiplying your anticipated annual budget by the number of years you expect to spend in retirement. Financial advisors often recommend planning for 20 to 30 non-working years, depending on individual health and life expectancy considerations.
Calculating Savings For "Pretty Rich" Retirement Budget
For those aiming for a "pretty rich" retirement lifestyle with annual expenses of around $67,000, it is necessary to accumulate approximately $1.2 million. This level of savings should adequately fund a comforta ...
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Counterarguments
- The 20-30 year retirement span may not be sufficient for everyone, especially with increasing life expectancies; some individuals may need to plan for a longer retirement period.
- The "multiply by 20-30 years" rule of thumb does not account for the variability in investment returns, inflation, taxes, and unexpected expenses that can significantly affect retirement savings.
- A flat annual budget may not accurately reflect spending patterns in retirement, which can change due to factors like health care costs, travel desires, and family needs.
- The terms "pretty rich" and "super rich" are subjective and may not align with everyone's perception of a comfortable retirement lifestyle; actual needs and desires can vary widely.
- The suggested savings targets do not consider the potential for passive income streams, such as rental income or dividends, which could reduce the total savings needed.
- The strategy does not address the risk of outliving one's savings, which could be mitigated by purchasing ...
Actionables
- Create a retirement vision board to visually map out your desired lifestyle, including travel, hobbies, and living arrangements, to better understand the costs associated with your retirement dreams. By using images and notes on a physical or digital board, you can get a clearer picture of what you want your retirement to look like, which can help you refine your annual budget estimates.
- Start a retirement savings challenge with friends or family where each person sets a monthly savings goal tailored to their retirement plans, and you check in regularly to motivate each other. This social accountability can encourage you to save more consistently and can be a fun way to stay committed to your retirement goals.
- Use a budget-tracking app to categorize you ...
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