Money Rehab with Nicole Lapin - Winning Financially in 2025: Setting Yourself Up For Retirement

Episode Date: January 8, 2025

The very first step in making a successful retirement plan (yes, even before starting that IRA) is to know how much you’ll actually need for retirement. Today, Nicole answers a question from a listener about how the heck to make that prediction. Tune in to find out!

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I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Hey, it's Morgan, the executive producer of the show. And as you know, this week we are playing the Money Rehab episodes that will make the biggest difference to help you meet your financial goals in 2025. Today's episode is all about saving for retirement. Enjoy.

In the financial world, retirement is a really big deal. So it's a really big deal here on Money Rehab as well. Naturally, I have covered it on the show, like in episode 136, the secret way to snag a Roth and episode 63, choose your fighter 401k or Roth IRA. But the very first step in making a successful retirement plan is to know how much you'll actually need for retirement. Money Rehabber Mara wants to know exactly how the heck to make that prediction.

Here she is. Hey Nicole, my name is Mara, and after listening to some money rehab, I'm ready to get serious about planning for retirement. I started making contributions to my 401k, but I'm not sure if I'm contributing enough because I'm not sure how much I should save for retirement in general.

How do I know how much is enough? Thanks so much. Love the show. In my upcoming book, Miss Independent, Mara, I outline three levels of wealth, but I'll give you a quick sneak peek before it comes out. Here is number one. I affectionately call this one rich enough where your super basic expenses are covered without any frills. Think of the brown rice and beans diet. Here's number two. If you feel best maintaining your current lifestyle, complete with occasional splurges like dining out or buying yourself something pretty, we all do, it is the pretty rich life

for you. Being pretty rich in retirement allows you to live comfortably with some indulgences but doesn't factor in a ton of future growth. And here's the third. Last but not least, we have the super rich level, which entails having more money than you can reasonably spend, aka baller status. You may already have a sense of which lifestyle you want to shoot for, but the next step is to crunch the numbers to see how much you'd need to save in order to achieve this lifestyle. There is no one right answer for how you want to spend when you retire. The only way to get

this wrong is to not think about retirement savings at all. Your plans can and will change, but having a realistic idea of what you're aiming for is the only way you'll be able to figure out how to get there. So let's make your retirement roadmap. For this, you'll need a writing utensil, a pen, paper, a Word document on your computer, whatever you have handy. First, we're gonna map out how much money you'd need per year for the rich enough lifestyle. To do that, write down all of the monthly expenses in your bare bones budget. These are the expenses that are absolutely essential,

no more, no less. I'm talking housing, brown rice and beans, utilities, the necessities. Once you have your list, add up all of the expenses in your monthly budget and tada! You have the rich enough category. Now multiply that number by 12 and you get your annual rich enough budget. Keep that writing utensil handy because we're going to go through this same calculation two more times. Get excited. Next, let's find your annual expenses for the Pretty Rich Lifestyle. To do this, you should take your minimalist rich enough budget and then add on some extra

layers of, well, extras. For this step, list out some mid-level financial treats. Eating out every so often, signing up for a bougie gym membership, whatever sounds good to you. Then add up these extras and multiply that number by 12 so you get your annual extras for the Pretty Rich Lifestyle. And then on top of that, add your Rich Enough annual expenses to get your total Pretty Rich Budget.

Should I still have you? See what I did there? Your Pretty Rich Budget is going to be your rich enough budget plus some pretty rich extras. Got it? Got it? Good. Now let's calculate the super rich annual budget. This is where we dream really big

with the biggest ticket items you ever think you could possibly want. Again, we'll end up doing some layering here. To find your total super rich budget, you're taking your pretty rich annual expenses and then add on all of the annual expenses for everything else you could possibly think of. A vacation home, a yacht, a fleet of jet skis, a big monument with your name on it. Seriously, go crazy. Now estimate how much per month you think you'd shell out to maintain that fleet of

jet skis. And honestly, some of these things are totally within your reach. If you think about the spirit of what you want, maybe it's not buying a fleet of jet skis, but maybe it's renting one at a lake once a year. Then you know what to do, multiply the total monthly costs by 12. Now you should have three numbers, your annual rich enough budget, your annual pretty rich budget,

and your annual super rich budget. We're not quite done yet because this is just the amount you're anticipating spending in one year. Remember, this is your retirement budget we're talking about. You won't be working, that's kind of the point, so you won't have any income coming in. So your next task is to calculate how much you need saved in total to support your lifestyle throughout the whole span of your retirement. You do this by taking your annual totals for your rich enough, pretty rich, and super rich levels, and multiply those numbers by how many years you expect to be in retirement.

Typically, when I coach people on calculating their goal retirement savings, I recommend that they anticipate spending 20 non-working years in retirement. Other financial experts recommend budgeting for 30 non-working years. Really, that's a personal decision. I know you might be thinking, sheesh, warn us before you bring up our mortality. I get it.

No one wants to think about how much time we have left. It is the big ole elephant in the retirement room though. Here on Money Rehab, I don't let that elephant go unacknowledged. Dumbo can grab a seat and join the rest of us in the pod closet. So did you do the math? I'm gonna throw out some numbers

for three levels of retirement wealth, but your numbers might not look exactly like this. I'm just gonna make some educated guesses so we can talk hard numbers. Let's start with the rich enough level. The median household income in the United States is about $63,000 a year before taxes. The average annual burn rate,

that is how much you spend per month and per year, is about half of that or $30,000. If we go off the average American needs, that's 20 years times $30,000 a year, and we get $600,000, we need to live the rich enough lifestyle in retirement. Now let's move on to pretty rich. For the purpose of this example,

I'm gonna use the $67,000 figure as the target annual spending in retirement because it's the average salary in the United States. So that means you'll need to have $1.2 million for a pretty rich lifestyle level of retirement. Finally, let's check out our super rich option. If you wanna be super rich and your annual spending is clocking in at something like 100 grand, then you'll

need to aim for around 2 million bucks to live out your days like our patron saint of badass old lady-dom, Betty White. For today's pep talk you can take straight to the bank, listen. In today's episode we faced the music. Well, numbers. But we'll end with some music. And we started with some too, which is by far the hardest step when thinking about planning for retirement. Crunching the numbers may have made you realize that the retirement life you're envisioning

will take more work than you actually thought or you may need to scale back. That may be the case. But also remember, after listening to the show, you're not gonna have just one source of funding for your retirement. I am not saying you have to make $2 million to have $2 million by retirement. You can make part of your retirement nest egg through index funds and chilling, for example, and retirement accounts that are growing

with the beautiful, beautiful forces of compound interest and investment gains. And rest assured, you are here, in Money Rehab, which makes you in the exact right place to get your retirement shit together.