Here’s How Much Retirement Income You’ll Need to Live Comfortably

Good Retirement Income

Saving for retirement is perhaps the biggest financial goal of every American. But when you retire, you will need sufficient income to replace what you were making before retirement. As you can imagine, this number will vary from person to person, since we all have different lifestyle plans for retirement. While Social Security will help quite a bit, it won’t get you completely retired. That’s why it’s so important to plan for retirement income and have a target number.

Retirement planning, whether that’s starting the process or finishing the plan, is possible with the help of a financial advisor.

What Makes a Good Retirement Income?

The rules for what makes a viable retirement income vary from expert to expert. However, the vast majority of them recommend something around 75% to 80% of your pre-retirement income. This could include all sources, such as 401(k)s, IRAs, Social Security, part-time jobs and more.

The most important thing with retirement income planning, however, is to make sure you don’t withdraw too much from your retirement accounts. Failure to do so could call into question the sustainability of your retirement, something you don’t want to worry about later in life.

Another big factor to take into account is your health care needs. If you are retiring soon or are in generally good health, you may want to consider setting aside less for health care and Medicare. This may mean that you will be able to save more in the future, or have a less cost-constrained retirement now. On the other hand, if your health care needs are substantial, you’ll want to be extra diligent in accounting for that.

Average Retirement Income

Nearly nine out of 10 people over the age of 65 receive Social Security benefits. According to the Social Security Administration (SSA), it represents about 33% of the income of the elderly population. However, unmarried older people are more likely to rely heavily on benefits than their married counterparts.

The SSA estimates that, as of April 2022, the average retired worker receives $1,666.49 per month in Social Security. Remember that this amount is only designed to supplement your retirement income. Although many Americans rely on it to varying degrees, it is usually not enough on its own.

The US Census Bureau conducted a Current Population Survey published in 2020 that shows the most recent data from 2019. It reported that Americans 65 and older have a median income of $55,836. Income in the survey is based on sources such as wages, non-farm self-employment, public assistance, interest and dividends and Social Security.

Although living expenses vary, that may not be enough for you, especially if you have medical concerns or a medical dependent. It also makes things tight for activities, such as vacations and trips to see family.

Factors That Will Help You Calculate A Good Retirement Income

Everyone works with a different amount of income during retirement. The amount you will be working with depends on several factors. Here are a few for you to consider:

How much will you spend in retirement?

You may have a particular goal in mind when you retire. Maybe you want the same kind of lifestyle you’ve always had. Or, maybe you want something a little more luxurious. Overall, your retirement plan should accommodate the financial freedom that reasonably fits your wants and needs.

But it’s not always easy to create a goal or estimate what you’ll need. In that case, you might want to consider the 80% rule of thumb. With this, you need at least 80% of your pre-retirement income to support yourself. It is lower than your total income because you will no longer have to worry about certain expenses. For example, a retiree doesn’t pay payroll taxes toward Social Security, contributions to their retirement plan or have to worry about expenses like commuting expenses.

The 80% is not fixed, however. It is only a guide. Once again, think about the life you want to lead in your golden years. Elderly people often want to travel at that time, which is expensive. Alternatively, they may have a health condition to pay for or dependents to support. Plan out enough to accommodate both types of expenses.

How much will your savings earn in retirement?

Good Retirement Income

Good Retirement Income

It depends on the type of investments you are making. However, it is difficult to predict exactly how much your savings will earn in the coming years. One way to guess is to look at long-term historical results. For example, according to Morningstar, the average nominal stock return has been fairly consistent. Nominal returns averaged about 10.85% from 1950 to 1979 and about 11.81% from 1980 to 2019.

However, that’s just one type of asset investment and doesn’t really reflect year-to-year fluctuations. And you can’t use the success of one asset to predict another asset. Your portfolio probably won’t have all of your funds in one single investment. So, the rate of return depends on your retirement plan and how much money you have.

You cannot control your portfolio returns. But strategizing your asset allocation, risk tolerance and time frame will help you get closer to your goals.

What is your life expectancy?

Unfortunately, the question “how long will I live?” is up in the air for most of us. Although we won’t really have a direct answer, media can help us guess. According to estimates from the SSA, the average male can expect to live about 18.1 years when he hits 65 years of age. In contrast, the SSA projects the average woman to live about 20.7 years longer after age 65.

However, it is important to remember that these numbers are estimates based on data. Reviewing your health history and your family’s health history will give you a stronger idea. For example, consider any congenital conditions or pre-existing diseases you may have as you get older. Or, look at your physical health so far. Both of these can have a significant impact on your longevity.

Overall, however, you don’t want to leave your financial planning to chance. It is better to choose a generous age and stick to it. That way, you have some cushion.

What is your withdrawal rate?

This is an age issue. One of the most common answers you’ll get is 4%, which came from the Trinity Study. This number comes from a study conducted by three finance professors from Trinity University in 1998. The premise of the study is that annual withdrawals of 3% to 4% should be maintained in a portfolio with 50% equity and 50% fixed income securities. This withdrawal rate should support a reliable passive income that can last for many years.

But by reducing the 4% rule for your situation, you will get better results, however. For example, try to be conservative in your withdrawals when you can. Also, delaying retirement will allow you to maximize your Social Security benefits.

Simple Ways to Increase Your Retirement Income

Saving money sounds simple, but there are many ways to do it. While nothing likes early savings, you can come up with the right approach if you’ve fallen behind. Here are some tactics that will help you increase your retirement income:

  • Set goals, such as when you want to retire and how much you will need.

  • Start saving as soon as possible to benefit from interest.

  • Make contributions to your 401(k) if you are eligible.

  • Attend to your employer’s matching 401(k).

  • Make additional contributions if you are over 50 years of age.

  • Put your savings into accounts automatically so you add to your funds regularly.

  • Cut back on spending whenever possible.

  • Open an IRA, traditional or Roth.

  • Store extra funds rather than splurge now.

  • Wait to collect Social Security benefits until your full retirement age.

Base line

Good Retirement Income

Good Retirement Income

Whether you want to spend your retirement relaxing on sandy beaches or in a cozy urban apartment, you’ll need to plan ahead. Knowing the financial benchmarks you need to achieve for your goals will help make the transition easier. Those benchmarks are your withdrawal rate, expected spending, estimated nest egg earnings and life expectancy. Know that there is no perfect way to save for retirement. Most of the planning depends on your personal situation. Don’t worry about keeping up with your neighbors or anyone else. A good retirement income supports your unique dreams.

Tips To Boost Your Retirement Savings

  • You may have a retirement plan but still feel stuck. Maybe you don’t know where to start, or you’re not sure if it’s enough. If you need help with your financial goals, consider talking to a financial advisor. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisor at no cost to decide which one is right for you. If you’re ready to find an advisor to help you achieve your financial goals, get started now.

  • In addition to your Social Security benefits, a well-funded retirement should have sufficient savings. See if you’re on the right track with our retirement calculator. However, your savings will only stretch so far according to your lifestyle. Try our cost of living calculator to get a clearer picture of what kind of income you’ll need in the future.

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