Understanding Retirement Savings Needs For Minnesota Residents

Retirement. It's something that seems so far off when you start working. If you are in your twenties and people say to start saving for retirement, it seems like so far in the distance that it doesn't really seem to matter that much. At least that was the case for me and several of the people I hung around with at the time. And generally at that point in your life you probably are making enough money to pay rent, food, car payment, entertainment, etc that there isn't a lot of cash left over.

Unless you are super responsible, which I absolutely was not.

So when you get a bit closer to that time, say with like 20, 15 or 10 years to go, it might seem sort of dire. But it isn't, apparently. There are still ways to save enough for you to live off of in retirement.

There is a simple calculator that will give you an idea as to how much you will probably need. This is based off of you retiring at 67, when you get full social security benefits, and living to an average of 95 years old. Oh, and by the way, social security should not be taxed. But that's a discussion for another time.

REASONS WHY SOME PEOPLE DON'T RETIRE IN HERE MINNESOTA

It's cold. Some people just prefer a warmer climate. But - you could totally be a snowbird. Get a timeshare or something. That could work.

Cost of living. Minnesota is one of the higher cost of living states in the country. Housing and healthcare are the biggest concerns.

Weather issues - tornadoes, floods, blizzards. But in my opinion, it's better than hurricanes and other areas that are more prone to flooding than Minnesota. But the blizzards, well, if you are retired, just stay inside and wait the storm out. Then maybe hire someone to clean out your driveway. Problem solved!

HOW MUCH MONEY DO YOU NEED

The obvious answer is that it depends on your lifestyle. The hopeful thing is that you will no longer have a house payment. That's usually everyone's biggest expense. But you will still have monthly bills, taxes, healthcare, and entertainment needs.

When you do a search on how much money do you need here are the basic calculations:

Retirement age of 67 (when most people will receive full Social Security benefits).
A 6% rate of return before retirement and a 5% rate of return during retirement (assuming a more conservative portfolio).
A 3% average annual inflation rate.
Salary increases of 2% per year.
Life expectancy of 95.

Example: If you are currently 35, and you make 60K a year, and you already have 30K in some sort of retirement savings/bonds/stocks, and contribute another $500 per month, you will need about $1.6 million when you retire at age of 67. That might seem a bit daunting. But, there is time. If you are older than that, obviously those numbers will shift. A common rule is the 80% rule.

The 80% rule for retirement is a guideline suggesting you'll need about 80% of your pre-retirement income to maintain your lifestyle in retirement because certain work-related expenses, like commuting and retirement savings contributions, will decrease or disappear.

But again, this is just a guideline. It really depends on your lifestyle and what you want out of retirement. Traveling a lot, or maybe just staying home and enjoying your relaxation. Or whatever it may be. But it's a good guideline.