“How much money do I need to retire?” is a question many Americans ask themselves, especially as their golden years and retirement come into view. And while it may seem like a simple, straightforward question, it’s rarely an easy one to answer. Many variables, goals, and preferences play into retirement planning. The amount needed to retire can differ based on the retiree’s age and how much one needs to live comfortably. Funding for retirement is usually as individualized as the retirees themselves.
How Much Money Is Needed To Retire?
Financial planners often recommend individuals replace up to 80% of their preretirement income to maintain a similar lifestyle, but whether this is necessary depends on each person’s goals. No two retirement plans look the same, which means financial planners field many questions on the topic, including:
- How much do I need in my 401(k) to retire?
- Can I retire on $1.5 million comfortably?
- Can I retire at 60 with 500k?
To answer these and other retirement funds-related questions for yourself, consider these five leading factors that affect how much money you need to retire and whether you need to boost your retirement savings:
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Living expenses
Before retiring, you’ll want to make sure you have enough money set aside in retirement savings to maintain the lifestyle you desire once you’re no longer receiving paychecks. Many experts recommend having enough to cover 70% to 80% of your annual pre-retirement income during each year of your retirement. For example, someone who makes $80,000 per year would want to be able to withdraw $60,000 annually during retirement to retain access to funds equal to 75% of his or her annual working income.
Other experts suggest following age-based plans to determine how much money you need to retire. These call for saving specified multiples of your pre-retirement salary by the time you reach certain milestone ages. You can use these guides to see if you’re on track for your age or whether you’ll need additional money saved to retire. One popular age-based recommendation is outlined in the chart below:
Age 40 45 50 55 60 67* 70 Multiples of annual preretirement salary 3X 4X 6X 7X 8X 10X 8X** * full retirement age for those born in 1960 or later
** retiring after full retirement age allows retirees to save less to sustain their preretirement lifestyles -
Life expectancy
The total number of years you expect to spend retired plays a big role in deciding how much money you need to retire. While each person’s life expectancy varies based on personal factors such as health, lifestyle, and family history, the S. Social Security Administration’s Life Expectancy Calculator, can estimate your life expectancy based on average American lifespans. Using this estimate, multiply the number of years you can expect to live after retirement by the living expenses figure determined above to come up with a rough approximation of how much you should have saved for retirement.
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Retirement age
The sooner you choose to retire, the more years you’ll spend in retirement — and the more money you’ll need to have saved up to support your post-career lifestyle. You could retire at 60 with $500K saved and, with appropriate planning, live comfortably for 30 years, but this same plan looks different if you retire at 50, 72, or another age. The longer you postpone retirement, the more time your retirement savings will have to grow… and the less funds you’ll need to cover your post-retirement expenses. (Your Social Security benefits also adjust as your retirement age increases; learn more about that below.)
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Post-retirement lifestyle choices
Once you hit retirement age, there will likely be some areas in which you won’t need to spend as much money. For example, many homeowners’ mortgage loans have been paid off by the time they retire, eliminating the monthly home payment from the list of regular expenses. It’s also common for retirees to no longer be responsible for their kids’ music lessons, school-related expenses, etc., as those could all be in the past. However, if you plan to travel frequently in retirement or would like to remain a member at your local country club, you’ll want to factor these significant expenses into your retirement budget — and adjust your retirement savings and 401K strategy accordingly.
When your lifestyle choices determine how much you need to save, you can estimate this using the $1,000 per month rule. This guideline can help you determine how much passive income you’ll need to sustain your lifestyle after retirement. The $1,000 per month rule assumes that retirees will withdraw 5% of their retirement income yearly for expenses. To do this, a person would need to save at least $240K per $1,000 of spending money, so for $2,000, this climbs to $480K, and so on.
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Social Security income expectations
Social Security was created to provide you financial support during your retirement years, and the size of the check you can expect to receive each month varies depending on the year you were born, how much you earned during your working years, and the age at which you choose to begin collecting Social Security benefits. The Social Security Administration’s benefit calculators page can provide an estimate of how much you can expect to collect in Social Security benefits during retirement. It can also give you a good approximation of how the numbers might change depending on when you decide to retire (along with providing other information related to your Social Security benefits).
Ready to set up an Individual Retirement Account? Arthur State Bank is here to help
Proudly serving South Carolina since 1933, Arthur State Bank offers accounts and services to meet a variety of financial needs. To help you achieve all your financial goals, the bank offers in-person service as well as a range of convenient digital solutions. To learn how Arthur State Bank can help you with banking needs ranging from checking and savings to retirement accounts, mortgages, other personal loans and more, visit arthurstatebank.com.</span
