Skip to Main Navigation Skip to Main Content

How Much Do I Need to Retire at 65?

Retirement
middle-aged woman smiles outside on a farm and wonders: how much do I need to retire at 65?

Have you ever wondered "How much do I need to retire at 65?" If so, you likely know just how difficult it can be to determine a realistic or useful answer on your own. That's because you simply can't know how a number of important retirement factors will play out — like what your health care needs will be, how long you can expect to live or what kinds of market fluctuations may occur during your retirement. Considering how much guesswork can go into determining the right amount of retirement savings, it's understandable that many people simply pick a number to aim for and assume it will cover their retirement needs.

Although some major retirement factors are unknown, it's nevertheless possible — and important — to develop an idea of how much you'll need to retire at 65. Here are some factors that may affect just how much you may need to have saved in order to enjoy a well-funded and fulfilling retirement.

How Do You Plan to Spend Your Time?

The amount of money you'll need for a well-funded retirement depends a great deal on what you hope to do with that time. Traveling the world in luxury will obviously cost more than retiring in place, but it's also important to recognize the costs (and savings) of other approaches to retirement. For instance, will staying put in retirement cost you more or less than downsizing to a smaller home or condo? Do you have expensive hobbies, like golfing or woodworking, or do you plan to spend your time volunteering?

A good way to figure out how much you'll need for your dream retirement is to write out what your ideal day, month and year will look like. From there, you can begin to calculate how much you may need to make that retirement happen.

How Much Do You Already Have Saved?

Once you know what you want to do, you'll need to look at how much you've already saved for retirement. Add up all of your retirement accounts, pensions and other investments. In a perfect world, the amount you have saved will cover the amount you calculated in the first step. In reality, however, you may end up looking at a shortfall between your current savings and your ideal retirement amount, meaning you may need to rethink your plans.

Tax Considerations

Don't forget that the taxman can still show up in retirement. If you've set aside money in tax-deferred retirement accounts, such as 401(k) plans or traditional IRAs, you'll owe ordinary income tax on the amount you withdraw. You'll also be required to take at least a minimum distribution each year once you reach age 70 1/2 — which means the amount of money in your retirement accounts represents more than you'll actually have access to.

In addition, up to 85 percent of your Social Security benefits can potentially be taxed, depending on your annual retirement income. It's important to understand just how much you may have to pay in future taxes as you plan for your retirement.

One way to lessen some of the tax implications is to set some money aside in a Roth IRA or Roth 401(k) plan (if available). You contribute after-tax dollars to these plans, which means you can withdraw your money from them tax-free.

Health Care Costs

While 65-year-old retirees are eligible for Medicare, that does not mean that health care won't be a major line item in your retirement budget. According to estimates, the average 65-year-old couple who retired in 2017 can expect to spend $321,994 in health care premiums throughout retirement, according to HealthView Services — and that cost assumes the couple is on Medicare.

So if you haven't yet factored health care costs into your retirement savings, it's important to add them in.

So How Much Do I Need to Retire at 65?

How much money you'll need to retire at 65 varies from person to person. You can start with the cost of your dream retirement, then determine how much you have saved already and how much you can expect from Social Security. (Keep in mind Social Security benefits might not be available at some point in the future.) You can then factor in your tax burden and the cost of health care.

This formula will help you estimate the amount of money you need to retire at 65. If the number you arrive at is too far off from the amount you already have saved, you may decide to either scale back your retirement plan or kick your savings into high gear to help make sure you can afford to retire at 65. Consider meeting with a financial representative to help determine the best strategy for you to make the most out of your retirement.

IMPORTANT DISCLOSURES
Information provided is general and educational in nature, and all products or services discussed may not be provided by Western & Southern Financial Group or its member companies (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation. 

Ready to Continue?

You have clicked a link to access information on a new website, so you will be leaving westernsouthern.com

Because this new site is independent, Western & Southern Financial Group neither manages nor assumes responsibility for its content. 

Are you ready to move forward?