How Much Money Will I Need in Retirement?
Planning and saving for retirement can seem daunting, but as with any long-term project, it may help to have a plan. Surprisingly, less than half of current workers have tried to estimate how much savings they will need to live comfortably in retirement.1 And even more alarming is the fact that one-third of Americans report that they have no retirement savings at all.2
Though everyone’s situation is different and there’s no one-size-fits-all plan, one common guideline is that you may need to replace 70% to 80% of your pre-retirement income. This typically assumes that you will have paid off your mortgage, will be in a lower tax bracket when you retire, and will not have work-related expenses, such as for commuting and business clothing.
If your retirement is 20 or 30 years away, it might be difficult to project your retirement income needs and living expenses, but it may help to start with some rough numbers. If your retirement is closer, projecting income and expenses should be easier. Here are some things to consider:
Social Security benefits. You can estimate your future Social Security benefits using the Retirement Estimator at ssa.gov. This tool assumes current benefit levels, so keep in mind that these are just estimates. The Social Security Administration (SSA) can’t provide your actual benefit amount until you apply for benefits. And that amount may differ from the estimates provided because:
- Your earnings may increase or decrease in the future.
- After you start receiving benefits, they will be adjusted for cost-of-living increases.
- Your estimated benefits are based on current law. The law governing benefit amounts may change because, by 2034, the payroll taxes collected will be enough to pay only about 79 cents for each dollar of scheduled benefits.3
Income streams and investment returns. What income streams will you have in retirement, if any? Do you have an annuity or another financial product that you can receive income from? For your investments, higher returns might enable your nest egg to grow faster, but it may be more prudent to use a modest rate of return in your calculations. If you experience higher returns, you might consider it a bonus. Remember that all investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Your retirement lifestyle. Perhaps you want to travel more, move to a different area of the country, or engage in new activities. Would these lifestyle choices require more retirement savings? If you’re anticipating that dream vacation to Italy, be sure to plan for it accordingly.
Expect a long retirement. Nowadays people are living longer, so your retirement may last 25 or more years. According to recent mortality tables, a healthy 45-year-old man would have a 45% chance of living to age 90 and a 27% chance of living to age 95. The odds of living to 90 or 95 are 56% and 37%, respectively, for a healthy 45-year-old woman.4 (Both scenarios based on a nonsmoker in excellent health.)
Plan for increased medical expenses. Modern medical care has contributed to longer life expectancies, but costs continue to rise. The average healthy 65-year-old couple today is expected to spend $377,000 or more on healthcare costs in retirement.5 Future retirees might face even higher medical expenses. Plus, that $377,000 figure doesn’t take long-term care costs (such as home-health care, assisted living or nursing homes) into account, which could run you at least $40,000 per year or more depending on the type of care needed.6
Be sure to contact your financial professional to help you estimate your retirement needs and a more thorough cash-flow analysis. A professional who focuses on your overall objectives can help you consider strategies that could have a substantial effect on your long-term financial situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or products may be appropriate for you, consult with your financial professional.
1The 2017 Retirement Confidence Survey, Employee Benefit Research Institute (EBRI)
32017 Understanding the Benefits, Social Security Administration
42017 Simplified Issue Composite Mortality Tables Report, American Academy of Actuaries and Society of Actuaries
52017 Retirement Health Care Costs Data Report©, HealthView Services
6Genworth 2017 Cost of Care, Genworth Financial, Inc.
Adult Financial Education Services (AFES)
Provided by: Adult Financial Education
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