How Much Money Do You Need to Retire Comfortably?

tax form with callculator and glasses

On one hand, retirement is an alluring prospect. You can spend your days in leisure, devoting all of your time to the things and people you love most instead of trying to squeeze in a bit of fun between working hours.

On the other hand, however, retirement can be daunting. How do you get by without a steady stream of income?

You want to be able to enjoy your retirement, not spend your golden years stressing about money. You know you can (and should) save up for it, but how much money do you need to retire comfortably?

If you’re feeling a little stressed about retirement planning, you’ve come to the right place. Outlined below is everything you need to know about saving for retirement, keep reading to learn more!

How Much Money Do You Need to Retire Comfortably?

Let’s start with a general recommendation from the experts. There’s no one-size-fits-all figure, but experts recommend that you set aside 10 to 15 percent of your pre-tax income for retirement.

Now, it’s difficult to predict factors like life expectancy. Because of this, you need to rely on your current spending and saving habits, as well as the retirement lifestyle you envision for yourself, to get a more exact number.

There are a few calculations that will make retirement planning easier than you think.

Income Needs

Calculating your income needs is the hardest step, but if you’re asking yourself “how much do you need to retire?” you have to start here.

A good rule of thumb is to assume you’ll need 80% of your pre-retirement income to cover your post-retirement cost of living. Some people might need more, while others need less – the key is to know yourself.

When you imagine yourself in retirement, what do you see? Have you paid off your mortgage and downsized your home? Are you traveling frequently? If so, what does that travel look like?

First, make a list of all your current expenses, including the amount of each. Then, consider each expense – when you retire, will the amount increase, decrease, or disappear? Take your best guess of what each expense will look like in retirement and write it down.

Next, think about any new expenses that you anticipate during retirement. Do you want to pick up golf? RVing? Ballroom dance? Restoring antique vehicles?

Calculate your spending needs for your new hobbies and tack them on to the figure you came up with in the first step. This will give you a rough estimate of your monthly expenses in retirement.

Income Sources

When you have an idea of your monthly income needs, you can move on to calculating your reliable income sources. The average person doesn’t need to rely on savings alone in retirement, as they have help from other sources.

Social security, for example, can be a game-changer. The amount you receive per month will depend on your work history and income. But, depending on your pre-retirement income, social security could cover almost half of your money needs.

The maximum social security benefit per month is just over $3,000 per month in 2021. That said, you shouldn’t count on this figure, as you have to meet certain criteria to get the maximum benefit.

Pensions and annuities bought for retirement can also be a huge help. Let’s say you estimated that you’ll need $4,000 per month to retire. You and your partner receive $1,000 per month each from social security and $1,000 from your pension, which leaves only 25 percent to be covered by savings!

Savings Requirement

At this point, you should have an estimate of your income needs and how much of it won’t be covered by income sources other than your savings. With those two figures in mind, you can calculate your savings requirement.

There are many retirement calculators and other free tools online that can help you with this step. They will account for things like inflation projections and market returns that can complicate your calculations.

Even with tools, however, saving for retirement can be a tough thing to navigate on your own. What’s the best age to retire? Where should you put your money to maximize savings? Are there safe investments you can make that will make saving for retirement easier?

If you’re feeling lost, consider enlisting the help of a financial advisor. Having someone you trust who has knowledge and experience with saving for retirement can make all the difference.

Don’t Choose A Figure And Forget It

You’ve done the hard part. You’ve made all the initial calculations and you have a figure in mind that you’ll need for a comfortable, stress-free retirement.

However, assuming that this figure will remain the same from now until you reach retirement age is a mistake.

Your retirement needs will change as you and your circumstances do. To keep up with these changes, you need to look back at your retirement calculations often and adjust as needed.

The last thing you want to do is reach 65 and realize that the calculations that you made when you were 25 are totally unusable.

Take Steps Toward A Comfortable Retirement Today

Your retirement should be a time for you to enjoy yourself, but money worries can make the idea of retiring more frightening than exciting.

You’re not alone in feeling this way. Everyone planning for retirement asks themselves “how much money do you need to retire comfortably?” at least once. And now you know the answer!

Now, having a figure in mind is just the first step, but we can help guide you through the rest of the journey as well. If you’re interested in learning more about how to retire and build financial security for the future, take a look at our blog.