How much will you need for retirement?
Whether you plan on leaving the professional grind in five years or fifty, it’s always the right time to think about retirement. No matter how you slice it, you need to stash away some serious cash. But exactly how much you need to save for retirement depends on a few different factors.
Plan on living forever? It’ll cost you.
If you’re fit, eat well and expect to live a longer-than-average life, you’ll need a bigger nest egg. Retiring at 65 and living until you’re 90 means your funds need to support you for another 25 years. The longer you think you’ll live, the more you’ll need to save. How to calculate your expiration date exactly? TBD.
After you retire, your spending habits are likely to change. Money that had previously been spent on a mortgage, commuting, work inflicted therapy, etc., may now go toward traveling or other hobbies. As you age, health care spending can increase dramatically, so you’ll need to factor in those costs as well.
The historical average rate of inflation is about 3%, meaning your $100 today will only buy $50 worth of stuff in 23 years. If the inflation rate goes up, your spending power sinks even faster. Your retirement plan needs to include a way to grow your investments, because as you age, you’ll need more each year to maintain the standard of living you’re accustomed to.
So, how much will you need to retire?
Unfortunately, there’s no one-size-fits-all approach. Spending needs vary greatly from retiree to retiree, but there are a few general rules of thumb that can help you ballpark your retirement savings goal.
About 80% of pre-retirement income
The key here is to have enough saved up so that you can live off your yearly investment returns, without having to touch your savings. If you’re earning $85,000 a year now, you should aim for an annual income of about $68,000 in retirement. Earning $150,000 now? Shoot for $120,000 in retirement.
Once you figure out the yearly income you think you’ll need, you can start planning how to get there.
Another way to figure out your retirement needs is to plan on withdrawing 4% from your nest egg in the first year, and then adjusting the amount you’ll withdraw for inflation each year after. To figure how big your nest egg needs to be, multiply your desired income by 25 to get your answer. Think you’ll need $50,000 a year to live? Bam: your nest egg needs to be $1,250,000. If you’re risk averse, maybe plan on withdrawing just 3% annually, in which case multiply by 33 to get the total you’ll need to retire comfortably.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.