Are you unsure of how much money you will need in retirement? This is a very common concern for Americans as they approach retirement age. This blog will give you some tips on how to begin estimating your needs in the future, as well as some tips on how to increase the longevity of your savings.
How Much Should I Spend?
One of the easiest ways to judge how much money you will need in retirement is to take stock of how much money you need right now.[1] Track your expenses and see how much money you spend on different aspects of your life. If you track your expenses for at least a few months, you should be able to get a sense of how much money you spend on average. Understanding your budget is the first step to understanding how you can replace your paycheck in retirement.
But also understand that your expenses and spending patterns can and may change in retirement. If you have a mortgage that you plan on paying off before you retire, then you don’t have to factor that into your retirement expenses.[2] The same goes for outstanding car payments or loans you plan on paying off before retirement.
How Much Income Will I Have?
Now that you have a sense of how much you’ll need to cover your living costs in retirement, you can determine what your savings should be invested in to generate enough income to cover those costs. Add up all of your income from rental properties, expected Social Security, pensions, and other investments, and compare that estimate to your monthly costs. If your costs outweigh your income, you may need to think about exploring other investment options, adjusting your lifestyle, or rethinking your retirement timeline.[3]
How Many Years of Retirement Should I Have Saved For?
On average, men who retire at 60 years old can live another 22 years. On average, women who retire at 60 can live another 25 years.[4] And while those numbers are estimates, they can at least give you a sense of approximately how long you should be considering saving for.
Should I Prepare for Long-Term Care?
Even though you may not need long-term health care, such as a nursing home right now, it can be a major retirement expense in the future.[5] There are options for insurance for long-term care that you should consider. If you do decide to get a plan, the cost of that plan will also have to be factored into your expenses in retirement.
How Can I Maximize the Longevity of my Savings?
Working longer is probably the best way to make sure your retirement money lasts as long as possible. Every year that you aren’t cutting into your savings is another year that you are bolstering your funds. You’ll be able to add to your retirement rather than withdraw from it. Additionally, every year that you delay claiming Social Security between the ages of 66 and 70 increases your Social Security benefit by 8%. [6]
Understanding the components of a comprehensive retirement plan is only the first step in executing it. It takes doing the work and knowing the strategies available to you to properly execute a strategy that will work for you. Contact us today for a complimentary review of your finances to take that next step in executing a successful retirement strategy.
