How Much Money Do I Need to Retire & Stay Retired?

Retirement
Grandfather fishing on a lake with his grandson: stay retired

If you've asked yourself these questions, then you are not alone. Many Americans worry about retirement and outliving their money. You might think you have saved enough to retire, but what does that really mean? You might say $1 million. Or you might figure that saving enough to replace 70 to 80 percent of your current income will be enough.

Unless you've carefully mapped out your desired retirement lifestyle, however, you're probably just guessing at what you'll need — and for how long you'll need it. So how much money do I need to retire? For those of you asking that question, let's take a look at how you can determine your potential retirement needs now in order to help establish a more secure future.

What's Your Retirement Budget?

You can calculate your retirement budget just like you budget for your current expenses. However, you will need to project some future expenses such as how you supplement benefits when you are no longer employed.

According to Bureau of Labor Statistics, when you are a retiree you should budget for at least six major expense categories, which are broken down by average annual cost by age group:

1. Housing

  • Ages 55-64, $18,006
  • Ages 65-74, $15,838

2. Transportation (Not including new vehicle purchase.)

  • Ages 55-64, $9,321
  • Ages 65-74, $8,338

3. Food

  • Ages 55-64, $6,800
  • Ages 65-74, $6,303

4. Health Care

  • Ages 55-64, $4,958
  • Ages 65-74, $5,956

5. Entertainment

  • Ages 55-64, $2,852
  • Ages 65-74, $2,988

6. Other (This includes personal care products, education, donations, etc.)

  • Ages 55-64, $5,963
  • Ages 65-74, $5,257

These numbers are a great starting point, but you'll also need to consider your planned post-retirement lifestyle and adjust the figures accordingly. Will you sell your home and downsize to a smaller house, apartment, condo or retirement community? How much will you travel? Do you want to be a snowbird, living six months in one location and six months in another? Careful planning is key to determining your retirement needs.

After you've calculated your probable expenses, consider minimizing any extra expenses you currently incur. That includes financing college or supporting grown children — as they can always find options to finance their lifestyles. Your retirement lifestyle, however, is solely up to you to determine. Consider allowing at least 10 percent more for your budget than you calculated, due to variations in the cost of things, like utilities and food.

How Can You Meet Those Expenses?

Once you have a financial goal based on your desired retirement lifestyle you can then determine how much income you plan on receiving from various financial resources. It is also important to consider analyzing your investments to help determine where you need to invest — or reinvest. Do you have a 401(k)? Annuities? Bonds? Stocks? Gather all of that information so you understand your current investment portfolio and its expected payouts.

Income

Determine if you can expect a pension from former or current employers. If you don't have the needed paperwork, contact your human resources department. It's also important to determine what Social Security payments you are eligible to receive. The Social Security Administration provides online calculators to help you calculate your estimated benefits, and even an online account feature to help you track these estimates.

Savings

Consider your current savings and plan how much you can realistically save between now and when you retire. According to CNNMoney, many financial analysts recommend people save 10 to 15 percent of their income for retirement, starting in their 20s. If you haven't done that, it's not too late — just start now. Also, find out if your employer has a retirement match for savings — often in the form of a 401(k). If so, do what you can to save enough to qualify for the match.

401(k)

This is the most popular type of retirement plan. As noted above, many employers offer 401(k) options for full-time workers — and some even offer matching dollars or profit sharing through 401(k) plans. A major benefit of a traditional 401(k) is that your contributions are made on income that's not taxed until you withdraw it. So, if you put $20 of your paycheck into a 401(k) now, no taxes are withheld from that money. You pay taxes on a 401(k) when you withdraw from it during retirement or penalties if you take out a loan.

Individual Retirement Account (IRA)

You can also consider opening an IRA as a self-directed retirement account. There are three main types of IRAs, each with specific restrictions and various tax benefits. If you invest in a traditional IRA, you can make a tax deduction for the year you contribute. The flip side is a Roth IRA, in which you invest taxed dollars and withdraw during retirement without paying taxes. Keep in mind there are income limits to participate in a Roth IRA. There's also a nondeductible IRA as an option for those who don't qualify for other types.

Annuities

These can be fixed or variable. Basically, when you buy an annuity, you pay a flat rate and are then paid a certain amount after you are retired or at another fixed date. Fixed annuities pay you a predetermined amount each month. Variable annuities are more complex and their payouts are based on performance of the stock market.

Preparing for retirement may not seem simple, but it can be straightforward when you approach it in steps. And by doing so, you can start to answer that tricky question: How much money do I need to retire — and stay retired?

IMPORTANT DISCLOSURES

Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Western & Southern Financial Group and its member companies (“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.

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