It would be great if there was one single magic number that retirees need in the bank to make their retirement comfortable. Financial experts bandy about different numbers, from $1 million or more to ten times your pre-retirement earnings. But who is right? And how much liquid cash should you have saved in your actual savings account?
For retirees who are planning to follow the many thousands of other Americans over 60 who retire to Florida each year, where the cost of living is about 2% higher than the national average, these may be even more pressing questions.
Financial experts explain some considerations for figuring out how much the average Florida retiree should have in their savings account and in retirement investment accounts.
What’s Financially Unique About Florida
Before looking at how much you need saved, it’s important to consider that Florida has some unique tax efficiencies. For example, there is no state income tax, no inheritance tax and no estate tax.
Andrew Van Alstyne, a financial advisor with Fiduciary Financial Advisors, said he advises clients who plan to retire in the Sunshine State to use non-qualified accounts for retirement — such as a Roth IRA or a Roth 401(k) — first, before other retirement account types. “It’s nice, because on withdrawal, you won’t get hit as heavily as in other states.”
He suggested you could save around $3 to $10 for every $100 you contribute by not having to pay Florida’s state income tax — money that adds up over time.
However, he warned, “Unless you’re willing to sign in blood today that Florida is where you’re going to retire, you don’t want to commit yourself to something you’ll ultimately be paying a penalty on.”
And remember, you do still have to pay federal taxes on withdrawals from most retirement accounts.
Six Months to 1.5 Years’ Worth in a Savings Account
For a “bare bones amount saved,” Van Alstyne recommended a minimum of six months’ worth of expenses, so you can pay for “the roof over your head and the food on your table if the market takes a downturn and we need to take a pause on your retirement account withdrawals.”
What he doesn’t want retirees to do is to “push eject on their investments” to cover basic living when the market is in a tight spot. Emergency savings can help to pad that transition, as well as be available for true emergencies that aren’t in the budget.
Don’t Dump It Into Traditional Savings
Also, Van Alstyne made the case for a savings account beyond the traditional — something like a money market account that is earning higher interest.
He also recommends having more than just a checking and savings account. “The general rule of thumb used to be that you open a checking account to get direct deposit and then a savings account, which are like the gas and brake of a car driving down a highway.”
The problem, he said, is that you’re more likely to spend all the money in that checking account without putting as much, if any into savings. Instead, he recommends people open a third account, simply a cash management account, for direct deposit of any income.
“Once [clients are] set on a budget, we’ll pass their budgeted money into their checking account, and then we’re capturing that extra money.”
Current Expenses x 25 to 30 Years
For retirement accounts, you’ll want to have a heck of a lot more money than you’ll likely have in your savings account, Van Alystne said.
While every client is unique, the baseline formula he works with is that each retiree or couple takes their current expenses and multiplies them by 25 to 30 years, if you’re retiring at the average age of 67.
“Traditionally speaking, you would get older and life would slow down, because you weren’t as mobile or healthy as you once were,” he said. “Now, you’re seeing less of that — people are maintaining an active lifestyle into their later years.”
Additionally, many people pick up hobbies in retirement, so expenses don’t necessarily decrease.
“So my projections are to maintain, if not increase, that savings to maintain the current lifestyle,” he said, not to mention calculating for inflation.
70% to 80% of Pre-Retirement Income
Marc Scudillo, a certified financial advisor and accountant and regional president at EisnerAmper Wealth Management and Corporate Benefits, said, “There isn’t a one-size-fits-all answer to how much savings a retiree in Florida, or any other location, should have.”
He said it depends on various factors, such as individual lifestyle, health, housing costs and desired retirement lifestyle. “However, financial planners often suggest that retirees aim to replace at least 70%-80% of their pre-retirement income to maintain a similar standard of living.”
A Savings Formula?
Van Alstyne works with clients to go through their monthly expenses line by line. “Any savings we do, we want to make sure we’re being very intentional with the money and putting it to its best use,” he explained.
He likened saving to going on a diet, saying, “It needs to be a lifestyle change and can’t be something where you’re making modifications and falling back on bad habits.”
Most people will find money that they don’t know how or why it was spent, when they begin careful budgeting, he said. “If you want to build in something like a night out, entertainment or gifting, let’s give it a name — otherwise let’s 100% put it into savings and get it out of that rotation.”
For Florida retirees, it’s important to have that liquid emergency fund, as well as strong retirement savings, to pad the way to a peaceful retirement.
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This article originally appeared on GOBankingRates.com: How Much the Average Florida Retiree Should Have in Their Savings Account