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HOW MUCH DO I NEED to save for retirement? How much will I spend in retirement? Can I live comfortably in retirement? Can I even afford to retire?
I can answer all these questions, but most likely none of my answers will be exactly right—for you. Experts tackle these questions, too, but provide inconsistent answers. Google any of them and you’ll get a range of results. Without knowing your situation, such shotgun advice is pretty meaningless.
I submit that you can’t plan your retirement based on the general assumptions and guidance that proliferate in all forms of media. The important questions—which I’ll pose in a moment—you need to answer for yourself.
How much do I need to save to retire? Fidelity Investments suggests that, by age 67, you need to have saved 10 times your annual income, but maybe only eight times if you intend to “downsize and live frugally in retirement.”
Can you retire with $1 million? To some people, this would be a dream. In theory, $1 million will generate about $40,000 a year in income—or is it $38,000, or maybe just $35,000? It depends who you ask.
Most people can add Social Security to this income. If you’re earning $80,000 a year, at 67, your Social Security income as a couple could be some $38,000. If you lived on $80,000 before retirement and have $1 million saved, can you retire on $78,000 a year? Yes, no or maybe? It depends on your circumstances and expectations.
The relatively few of us who earned a pension have it easy compared with most Americans. We have a steady income stream—just like when we worked—on top of Social Security and income from savings.
In retirement planning projections, I often see the words “frugal,” “comfortable” and sometimes “getting by.” While these words are subject to interpretation, isn’t the desired goal to at least maintain the same standard of living we had throughout our lives? Who would plan for a future where they’ll just “get by”?
Here’s another puzzler I’ve heard: There’s no need to save during retirement, right? Not in my experience. Over the past few years, like most people, I’ve paid thousands in unplanned expenses—dental care, car repairs, a child in need of assistance, even a dead tree. That cash came from emergency savings, which I contribute to each month. Yes, I’m saving in retirement. Absent that saving, I would have sold investments.
Everyone needs a saving, investing and spending strategy for retirement. As part of your deliberations, try to answer these questions for yourself:
In answering these questions, I’d caution against using general assumptions—or planning to just “get by.” Aim higher. Perhaps a quick reality check using HumbleDollar’s Two-Minute Checkup will help.
Here’s a retirement calculator. https://www.nerdwallet.com/investing/retirement-calculator
You can plug in your age, salary, investments per month and calculate where you are to retirement at 65, etc. The example shown is a 35 yr., old making 60k and saving $500/mo. He’s behind and will need 1.73 million to retire at 65.
Moral of the story: Pick whatever retirement calculator, book, investment advice, or article you want; however, my mantra was (when I retired at age 66 1/2) and still is that you need 18 to 25 times your last annual salary, not including social security. And, I waited until I was 70 to start collecting. Why, because we didn’t need the money and my wife was 54 and working at the time, so it was for her long-term benefit when I am gone.
How can you know that unless you have defined what you need to live on the way you want to live? If you were earning $60,000, you need $1.5 million plus SS?
Sorry, I misquoted. I really meant 15 to 20 times your last annual salary saved up including social security, my mistake.
Here’s what the Nerdwallet website also recommends.
“A common guideline is that you should aim to replace 70% of your annual pre-retirement income. This is what the calculator uses as a default. You can replace your pre-retirement income using a combination of savings, investments, Social Security and any other income sources (part-time work, a pension, rental income, etc.). The Social Security Administration website has a number of calculators to help you estimate your benefits.”
Good article, good questions.
My other reaction after first reading is even more pronounced after reading this comment, so I’ll mention it now – I was pleased to note no mention of replacing 100% (or any other %) of income.
“How can you know that unless you have defined what you need to live on the way you want to live?”
Completely agree.
I usually assume everyone wants to maintain their pre-retirement standard of living even though it may be a somewhat different lifestyle.
Central questions for everyone, concisely put.
Interesting how many of these quesitons are only partly financial in nature, notably the second bullet point having to do with what your spouse thinks will happen in retirement. Just a guess, but finding out you and your spouse are not on the same page two weeks into retirement is likely suboptimal. I’d add other family members as well.
You got it! You don’t want to hear “ I married you for better or worse, but not for lunch.”
Married 54 years, retired 13 years and we are still in sync. 🫣
another excellent question(s) are
Am I healthy ? if 60-70% healthy, what can I improve/change if I retire?
Perhaps, how will my (our) health affect our retirement.
This is a great article – it’s different for everyone! I’m most often amused by experts who comment about living on a percentage of our pre-retirement income. My wife and I didn’t spend all of our income while working, so spending up to perhaps 70-80% of our preretirement income while in retirement would be more than we spent while working.
I’ll get a big raise in June, because I’ll turn 70 and start drawing Social Security. I don’t plan to increase my spending just because I have it. I’ll be saving it for that next big trip, or to replace that 12-year-old car, or the unexpected house repair.
Excellent questions.