How Much Do You Need for Retirement?

How Much Do You Need for Retirement?When we say $1 million, we tend to think that it’s a lot of money, and it is.

After all, many of us have to work really hard to save and still find ourselves a long way off from reaching that amount.

But then, if you think about it, will it be enough to sustain you for, say, 25 or 30 years after you retire?

How much do you think you need for retirement?

People think differently about how much they would need when they retire.  Rightly so, since individuals and families have different lifestyles, requirements, and plans.

The Employee Benefits Research Institute conducted a Retirement Confidence Survey.

One question was to find out how much the respondents think they need to accumulate in order to live comfortably upon retirement.  They found that:

·         11 percent of workers believe they need $1.5 million or more in retirement.

·         10 percent said they need somewhere between $1 million and $1.499 million.

·         25 percent said they need $500,000 to $999,999.

·         19 percent said they need somewhere between $250,000 to $499,999.

·         25 percent said they need less than $250,000.

·         8 percent answered they don’t know.

According to CNBC, asset manager Legg Mason also surveyed investors, who said that they need $2.5 million at least in order to maintain their standard of living when they retire.

What Experts Say

Because it is such an important question that many people want the answer to, experts have come up with estimates and suggestions on how individuals would be able to sustain themselves when they retire.

According to Time, if you have a million in your investment portfolio, it is likely to initially generate roughly $30,000 to $50,000 annually and, to account for inflation, would increase a little every year.

For some, this amount plus Social Security would be enough to sustain them in retirement, but it may not be so for others.  After all, the value of dollars is not what it once was – what was worth a million dollars in 1986 is now worth $2.2 million.

Retirement accounts provider Fidelity suggests that a person should have at least eight times their ending salary by the time they retire.  So if you’re ending salary is $75,000 a year, then you would need to have stashed away and invested $600,000 upon retirement.

The most common way to estimate retirement needs would be to compute a percentage of your income.  Often, this is somewhere between 70 and 90 percent of your current earnings, with 80 percent being the most commonly used benchmark.

For example, if you are receiving $80,000 a year, then you should have enough to be able draw out $64,000 annually or $5,333 per month from your savings and investments.

Some experts say that you can withdraw around 4 to 4.5 percent of your savings to be able to make your funds last until the end of your days.

This means that if you need $64,000 per year and you have no other sources like pensions, then you should have roughly $1.6 million saved.

So much do you really need?

However, there is no real definitive number because your retirement needs would depend on many things, like your lifestyle and your health.

Still, there are some guidelines that can help you determine how much you would need to live comfortably.

One thing that you need to remember, though, is to stay conservative in your estimates, because it’s better to have more money than you can actually spend than not have enough to last.

Here are some things that you should consider when you try to compute your retirement needs.

How do you intend to live when you get old?

It would be a mistake to think that you would still live in exactly the same way when you get old as you do now.

By the time you retire, you may want to live a more simple life, live in a smaller house, lessen the times you dine out or shop, and so on.  This means that you are likely to spend less.

On the other hand, you may want to live your life to the fullest and travel to different places, start attending more social functions, host more parties, etc.  This means your spending would stay the same or increase.

Also, you need to consider if you plan to move to a retirement home eventually.  According to Help Guide, the average monthly cost for independent living is somewhere between $1,500 to $3,500, and that is likely to increase by the time you retire.

How healthy are you?

When you make your estimates, you should also consider the state of your health.

Let’s face it, the less physically fit you are from being sedentary for years or from living an unhealthy lifestyle, the more you should think about medical expenses when you get old.

According to CNBC, a retiree couple in 2014 would need to have an average of $220,000 to cover their medical needs.

If you haven’t done so yet, get a Health Savings Account.  This acts your buffer for medical expenses but you can also use your savings for retirement.

How much do you have stashed and invested?

Of course, you need to work out the numbers.

First, find out how much you have in your savings and compute how much you can withdraw (apply the 4 percent rule).  Add this to the amount you are likely to get from your Social Security and your pension.

Next, compute how much you need to support your living expenses plus any debts or mortgage balance by the time you retire.

You may find that you will have less expenses by then, that is, if you finish paying your debts before you reach your retirement age or if all your kids have grown up and you no longer have to support them.

Subtract your possible expenses from your potential income, and if the result is negative, then you would need to start spending less and saving and investing more.

In short, the amount you would need when you retire depends on you – your lifestyle, your health, your debts.

How far you are in terms of reaching that goal would also depend on you, too – your savings as well as how much and where you invest.

The secret is to saving and investing as much as you can, starting now.

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Written by ratetake


Martin is Head of Real Estate and Finance division at RateTake. He creates content that helps people understand and make the right decisions for their financial future.