How Much Money Do You Need in Retirement?

By K. Bridget Schneider, CFP®, CRPC®

how much money you need in retirement

Have you asked yourself how much money you need in retirement? That’s a great question! I have read some rules of thumb that suggest five hundred thousand up to one million dollars, but that is such a wide range. How do you know which end of that range is right for you? Or even if the top of that range will be enough?

The amount you need in retirement depends heavily upon your individual goals, your lifestyle, and how long you may live. Even if you feel financially savvy and are diligently saving for retirement, you may be uncertain about how much you need to save for your retirement. Rather than trying to answer this question for everyone, it might be helpful to consider a hypothetical example.

Estimating How Much Money You Need in Retirement

You may recall from my last blog that I commented on how difficult it is for young adults to start saving. To reinforce the importance of saving for retirement, let’s start with an example of Julie, a 30-year-old woman who wants to retire at age 65. Julie estimates she will live to be 90. That means she needs to plan for a retirement lasting 25 years. Her only source of retirement income is Social Security which estimates approximately two thousand dollars a month in today’s dollars if she waits until full retirement age.

After considering current expenses, Julie estimates she’ll need $4,000 per month in retirement to pay bills and have some fun. But that’s in today’s dollars. Considering the effect of a potential 3% annual inflation, she can expect an annual living expense of $48,000 today to grow to $135,065 in her first year of retirement (2053) and to $282,797 in her last year (2078). This is the step that many forget. They use the same withdrawal amount each year in their calculations. However, due to inflation, that withdrawal may purchase less with each passing year.

So, the total amount Julie needs to fund her retirement for 25 years and allow for increases to compensate for inflation is over five million dollars! Assuming her savings will grow at a hypothetical rate of 5.5% after she retires, she needs about three million dollars when she retires at age 65 to meet her total potential needs.

The Reality of How Much Money You Need in Retirement

Julie’s hypothetical example is quite a bit more than the one million dollars I mentioned earlier! So, how much money will you really need in retirement, and how can you get that amount saved? It may seem too big to tackle, but it can be done. For ideas on how you might manage that goal, contact us here. We’ll be happy to provide some options to help you work towards your own goal.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

Recent Posts

Six Common IRA Mistakes to Avoid

Knowing the common IRA mistakes to avoid could save you thousands of dollars over your lifetime. We’ll cover 6 of the most common mistakes in this article.

4 Common Money Mistakes to Avoid

Are you making money mistakes as you pursue your goals? Here are four of the most common money mistakes people make as they ready for retirement.

The SECURE Act and What it Means For You and Your Family

What is the SECURE Act? (Setting Every Community Up for Retirement Enhancement) And what does it mean to you and your family? We help you understand, and also offer free workshops for more information. https://connectionsfinancialadvisors.com/upcoming-events/

5 Mistakes to Avoid in Beneficiary Designations

Naming a beneficiary can be an easy way to ensure your loved ones will receive their inheritance directly without waiting until the rest of your estate has settled.  But beneficiary designations can also be problematic so you should make sure they are correct since mistakes can be costly.  Here are five critical mistakes to avoid when dealing with your beneficiary designations.

Contact

Office: 217.605.8130
Toll-Free: 844.305.7670
Fax: 217.666.4188

604 N Union St Ste 1
Lincoln, IL 62656

Email Us

eNews

Sign up to receive the latest news, tips, outlooks and more:

Where are you located?

We are located in Central Illinois in the town of Lincoln. We also have an office in Plano, Texas. We work with a national clientele and will be happy to serve you.

Can I learn more about your services?

Sure. We advise clients on investment management, retirement planning, and other financial matters to help manage what they have. Because, many people save and invest, but they aren’t really sure they’ll have enough assets to be comfortable and do what they want in retirement or later stages of life. We show them whether they are on target or not. We can help you, too.

Would you like a no-cost, initial conversation to learn if you’re on track?

Yes, Thanks.