How much money will you need in retirement? This is a very common question for Americans as they approach retirement age. Keep reading below for tips on how to estimate your retirement needs and gain insight into increasing the longevity of your savings.
How Much Do I Spend?
One of the easiest ways to judge how much money you will need in retirement is to take stock of how much money you are spending now. Track your expenses over the course of a few months to see how much money you devote to different aspects of your life. Understanding your expenses is the first step to understanding how to replace your paycheck in retirement. Keep in mind your spending patterns may change based on your debts. If you pay off your home and installment loans before you retire, the expenses can be deducted from your overall monthly estimated budget. Also, factor in inflation and an increase in medical expenditures to truly reach an accurate estimate.
How Much Income Will I Have?
Now that you have a sense of how much you’ll need to cover your living expenses in retirement, you can determine how much savings to invest to reach your goals. Simply add expected Social Security, pensions, other investments, and rental property income. Then compare your evaluation to your estimated monthly budget. If your expenses outweigh your income, you may need to explore other investment options, adjust your lifestyle, or rethink your retirement timeline.[3]
How Many Years of Retirement Should I Have Saved For?
On average, men who retire at 60 years old can live another 22 years. On average, women who retire at 60 can live another 25 years.[4] And while those numbers are estimates, they can at least give you a sense of approximately how much savings you may need to last, and working for much longer may be your only option if you have not planned for this transition properly.
Should I Prepare for Long-Term Care?
Even though you may never need long-term health care, ignoring this aspect of retirement could prove disastrous to your future. It may become the single most expensive retirement expenditure,[5] rapidly decreasing your savings and permanently altering your legacy plans. The expense of long-term care may burden your loved ones, both mentally and financially, as well. You should consider purchasing long-term care insurance to offset this risk, but remember to factor in the expense of maintaining your policy when determining your budget in retirement.
How Can I Maximize the Longevity of my Savings?
Working longer could be the best option to ensure your retirement money lasts for the rest of your life. Every year that you aren’t pulling money from your savings is another year that you are bolstering your funds through interest. You’ll be adding to your retirement rather than withdrawing from it. Additionally, every year that you delay claiming Social Security between the ages of 66 and 70 increases your Social Security benefit by 8%. [6]
Understanding the components of a comprehensive retirement plan is only the first step in executing it. Speaking with a professional advisor to learn how to properly execute an approach that will work for your specific concerns could save you sleepless nights and shave years off your current trajectory. Contact us today for a complimentary review of your finances and begin the process of designing a successful retirement plan to suit your individual needs.
