How Much Do I Need to Retire at 65?

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

Key Takeaways

  • Retirement expenses depend on your desired lifestyle during retirement, including hobbies, travel plans, and housing choices.
  • Assess your current savings and investments to see if they align with your retirement goals.
  • Consider the tax implications of your retirement savings, including withdrawals from tax-deferred accounts and potential taxation of Social Security benefits.
  • Health care costs can be a significant factor in retirement planning, even with Medicare eligibility at age 65.
  • A comprehensive approach, considering all the factors mentioned, will help estimate the amount needed for a comfortable retirement at age 65.

Although some major retirement factors are unknown, it's nevertheless possible to develop an idea of how much you'll need to retire at 65. Here are some factors that may affect 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?
  • 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 need to take at least a required minimum distribution (RMD) each year once you reach age 70½ (if you were born before July 1, 1949) or age 72 (if you were born after June 30, 1949)  — which means the amount of money in your retirement accounts represents more than you'll actually have access to.

In addition, up to 85% 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 2022 can expect to spend $315,000 in health care premiums throughout retirement, and that cost assumes the couple is on Medicare.1

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.

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  1. Americans can expect to pay a lot more for medical care in retirement.

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