Have you been saving for retirement without a clear idea of how much money you’ll need to live on? If so, estimating your retirement income should be an essential part of your saving strategy.
A 2012 study by the Employee Benefit Research Institute found that only 42 percent of American workers said they have completed a retirement-needs calculation – the basic planning step that can help individuals determine how much money they may need in retirement and how much they will need to save to meet their retirement goal.
Plan To Maintain Your Standard Of Living
Most retirees want to maintain their standard of living during retirement. To accomplish this, financial experts say you’ll need between 70 and 80 percent of your pre-retirement income. So, for example, a couple earning $60,000 per year would need between $42,000 ($60,000 x .70) and $48,000 ($60,000 x .80) each year during retirement.
Why less? Retirement typically triggers a number of changes in spending patterns. Your cost of living will change if you’ve paid off your mortgage and other loans, your children have finished college and moved away, or you no longer have working- and business-related expenses. Plus, you’ll no longer be contributing to retirement plans.
Of course, your specific situation will dictate the amount of money you'll need to live on. You may need more money than you anticipate. Health-care costs have increased, and you could possibly use up a greater portion of your income than you planned to ensure your insurance needs are met. Also, you’ll have more time to do the things you love, so you may spend significantly more on leisure activities, such as travel, entertainment, and hobbies.
Consider Your Lifespan
In addition, you need to take into consideration how long you might live. People are generally in better health and living longer, more active lives than ever before. According to the Social Security Administration, a man reaching age 65 today can expect to live to 83; a woman, 85. Those are only averages – one in 10 people will live past age 95.
With so many factors to consider, estimating retirement needs can be difficult. Our retirement calculator is a good place to start. To see if you’re on track, answer a few questions about your goals, how much you’re saving now, and your retirement income sources.