Want to start investing or planning for retirement? Our team can help.

TALK TO AN ADVISOR

icon of two gears to show concept of expanded lessons Expanded Lesson 8 min read

How Much Do I Need for Retirement?

  • Facebook
  • Twitter
  • LinkedIn
  • LinkedIn Copied link to Clipboard!

Saving for retirement is an almost universal problem. At some point, and at some age, most people aren’t physically able to keep working. And it’s why setting aside a nest egg is crucial.  The idea of running out of money when you’re no longer able to work can be frightening to many people. Social Security is designed to fill in the gaps, not be the sole source of retirement income.  Most people can’t afford to live just on their monthly Social Security benefits. That’s why you need to do your research before deciding how much to save for your retirement each month. Use this in-depth guide to make sure you can cover your everyday expenses when going to work is no longer an option.

Want to start investing or planning for retirement? Our team can help.

TALK TO AN ADVISOR

Senior couple looking at the menu in an outdoor coffee shop on retirement trip.

Create a Budget

The first step toward saving for retirement is to put together a budget for your later years. This depends on a variety of different factors, including your age, health, marital status, current savings and future lifestyle. As a rule of thumb, it’s best to set aside anywhere between 60% and 70% of your pre-retirement income for every year you plan on being retired.

For example, if you currently make around $50,000 a year, you will need between $30,000 and $35,000 per year to retire at your current lifestyle. If you plan to live another 20 years after ending your career, multiply $30,000 by 20 for a total of $600,000.

Adjust for Time

There are other factors at play as well. Don’t forget to factor in the cost of inflation, yearly salary increases and the rate of return on any investments you may already have, including stocks, bonds and other assets.

Your savings will likely fluctuate over time based on your current portfolio, but it all depends on how and where you invest your money.

  • A growth portfolio, such as a 100% equities portfolio, has higher risk and focuses on long-term growth of the principal with an estimated 8% to 10% return.
  • If you have a more balanced portfolio, expect to see more moderate gains down the line. For example, a 50% stock to 50% bond portfolio typically returns 5% to 6% annually.

Look for high-yield savings and retirement accounts to help you reach your goal that much faster.

What About Social Security?

Social Security can help take a bite out of the sum you need. Your Social Security income depends on how much money you’ve made over the course of your career. Currently, the maximum benefit the government will pay is around $3,790 per month, but that’s only if you plan to start receiving Social Security at age 70. If you start your Social Security benefits at 65, you will receive around $3,011 per month, or can receive as little as $2,265 if you start at 62.

Calculating your retirement budget depends on when you retire. Consider holding off a few more years to earn more from Social Security.

Yellow lightbulb with dollar sign in the middle svg icon Quick Tip

Your “full retirement age,” or the age in which you’ll receive unreduced Social Security retirement benefits is dependent on when you were born. Check the Social Security Administration’s website to find your full retirement age.

Cutting Post-Retirement Expenses

You can also cut back your post-retirement lifestyle to save more money. Consider how you plan on spending your time. For example, ask yourself how many times you will want to go out to eat, take a trip or buy new furniture.

Examine your existing expenses to determine how many will still be there when you’re no longer working. Will you spend roughly the same amount on food, clothing, commuting, housing, entertainment and other services? When will your mortgage be paid off? If so, you should have a solid idea of how much money you’ll need down the line.

If you think you won’t need as much space during retirement, consider selling your existing home and relocating to a condo, apartment or one-story home. You can then put these earnings toward your retirement nest egg.

Many people plan on taking it easy when they retire. That may mean spending more time at home, avoiding expensive meals and trips and focusing more on hobbies. Chances are you won’t be as active or mobile in your old age, so consider adjusting your budget based on these lifestyle changes.

You may also decide to take up a part-time job during retirement. Many seniors decide they like to stay busy and active, so consider whether you will want to continue working even after you retire from your full-time job. On the other hand, retirement may be your time to live life to the fullest. You will have time to explore new hobbies, passions and even far-flung destinations. If this is your goal, consider putting aside even more for retirement.

Update Your Budget Consistently

While calculating a budget for retirement is important, this number is only meant to serve as a rough estimate. This will likely change down the line as your retirement funds rise and fall with the stock market and your finances continue to evolve.

Spend time every year or so updating your budget as time goes on. Swap out figures that are no longer relevant, such as inflation, investment appreciation, monthly income and expenses. As soon as something changes relating to your finances, be sure to update your budget accordingly.

Don’t forget to adjust your retirement estimate based on how much you are currently saving. If you’ve been able to save more than expected, you will have more money to work with down the line. This also shows that you can get by with less. For example, if you are currently saving around 30% of your income for retirement, you can easily make ends meet with just 70% of your income.

Plan for the Worst

It’s always best to pad your retirement budget, so you don’t have to worry about coming up short. Leave extra room in your budget to plan for the worst. There’s always a chance the stock market could crash, taking your 401(K) with it.

There may also be a chance you could lose your job. Factor in possible outcomes, such as a sudden change in income, unexpected expenses and unforeseen events like a natural disaster.

One of the biggest changes that you need to plan for is a sudden change in health. You may no longer be able to work in the same capacity, which may mean collecting disability, taking time off work or changing careers.

Consider how much money you will need to maintain your health. Medicare may only cover a portion of your medical expenses, including prescription medications, surgery, premiums, co-pays and other related bills. A sudden accident or a new diagnosis could upend your retirement plans, so be sure to plan for the worst.

Do your best to maintain your body and mind as the years go on. Stay on top of your health to better anticipate how much you will need to spend on medical care down the line. Costs for services like assisted living and memory care can stretch any retirement budget, so plan accordingly with family health history in mind. It may also be a good idea to sign up for long-term care insurance. Long-term care insurance applications are dependent on your health, so make sure you look into it as you approach retirement age. Factor these premiums and co-pays into your retirement budget.

Do Your Homework

If you feel as if you’re flying blind when trying to save for retirement, you’re not alone. Consider working with a financial advisor to make sure you’re on the right track. Instead of trying to predict the future, use this calculator from Ent Credit Union to estimate how much you’ll need for retirement.

Use these tools to better understand your current financial situation. You can figure out how long your nest egg will last, whether it’s better to invest in a traditional 401(k) or a Roth 401(k) and how much you can expect to receive in Social Security benefits, all of which will help you better estimate your needs in the future.

Saving for retirement is so much easier when you have access to the right information. Keep these tips in mind when calculating how much money you will need in the years to come.

This article is intended to be used for informational purposes and should not be considered financial advice. Consult a financial advisor, accountant or other financial professional to learn more about what strategies are appropriate for your situation.

Related Resources

View All