How Much Do I Need to Retire?. Thus, if you earn $75,000 annually, you'd aim for an income of $60,000 in retirement. Once you arrive at the income you expect to need in retirement, think about what it will be made up of. Another rule of thumb, the 4% rule, suggests withdrawing 4% from your nest egg in your first year of retirement, and then adjusting that for inflation in each successive year. If you have faith that inflation will remain low and the market will perform well for you, you might plan to withdraw 5% annually, in which case you'd multiply your desired income by just 20, getting $400,000. Check out the kind of fixed annuity income you might buy at recent interest rates: Person/People Cost Monthly Income Annual Income Equivalent 65-year-old man $100,000 $545 $6,540 70-year-old man $100,000 $623 $7,476 70-year-old woman $100,000 $586 $7,032 65-year-old couple $200,000 $937 $11,244 70-year-old couple $200,000 $1,029 $12,348 75-year-old couple $200,000 $1,178 $14,136 Alternatively, or in addition to that, you might build an income stream with dividends. 5.1% General Motors 4.4% National Grid 4.4% Phillips 66 3.5% Coca-Cola 3.3% Novartis 3.3% Procter & Gamble 3.1% T. Rowe Price 3.1% Johnson & Johnson 2.5% Finally, if you're thinking you've screwed up and aren't likely to get the retirement income you need, know that you probably still have time to improve your situation, if you save aggressively. Here's how much you might amass over several relatively brief time periods if your money grows by an annual average of 8%: Growing at 8% For: $10,000 Invested Annually $15,000 Invested Annually $20,000 Invested Annually 3 years $35,061 $52,592 $70,122 5 years $63,359 $95,039 $126,719 10 years $156,455 $234,682 $312,910 12 years $204,953 $307,429 $409,906 15 years $293,243 $439,864 $586,486 Don't leave your retirement income up to chance and Social Security. The average monthly Social Security retirement benefit was recently $1,365 per month, or about $16,000 per year, with the maximum benefit for those retiring at their full retirement age recently at $2,687 per month -- or about $32,000 annually. Planning, saving, and investing effectively now can make your retirement much more comfortable.
Countless workers look forward to retirement, but for many, the thought of leaving the workforce for good is a major source of anxiety. If you’re feeling unsettled about retirement, here’s how to make sense of some of the questions that may be floating around in your head.
1. How much money will I need to retire?
One of the most stressful aspects of retirement is not knowing how much money you’ll actually need. After all, there are many different factors that will ultimately dictate the amount of income you’ll require, and if you’re a good 15 or 20 years away from retirement, it’s hard to say what your living costs will look like so many years in the future.
What you can do, however, is read up on what seniors are spending now to get a sense of what you might be looking at down the line. For example, currently, the typical retiree spends about $15,500 per year on housing, $6,800 on transportation, and $5,500 on food. While these costs might easily climb over time, if you apply a 3% annual rate of inflation (a fair assumption based on past data), and multiply that by the number of years you have until retirement, you can come up with your own ballpark estimates. From there, you can begin to work up a retirement budget that will give you a savings goal to aim for.
Another thing to look closely at is healthcare, especially since it can end up being your single greatest expense in retirement. HealthView Services, a provider of cost-projection software, recently ran some numbers and found that the average healthy 65-year-old couple today can expect to spend $377,000 on medical care in retirement. Younger couples, however, are likely to face even higher costs. In fact, a 55-year-old couple today might pay as much as $466,000 for healthcare in retirement, while a 45-year-old couple might spend a whopping $592,000. These numbers aren’t meant to frighten you but rather to make you aware of the costs you might be looking at down the line.
2. When should I start taking Social Security?
There are different strategies you can employ with regard to Social Security, but yours should ultimately boil down to what you expect to do with that money. If you’re confident you’ll have enough savings to get by without Social Security, you might take a different approach to filing than someone who’s desperate for cash.
But before you can even begin to think about developing a Social Security strategy, you’ll need to understand the implications of filing at various ages. In a nutshell, your Social Security benefits are calculated based upon how much you earned during your working years. If you first file for Social Security at your full retirement age (which is either 66, 67, or somewhere in between, depending on the year you were born), you’ll collect your base benefit amount in full. If you file at 62, which is the earliest age you’re eligible to collect benefits, you’ll slash your payments for life. Wait until age 70, on the other hand, and you’ll boost your payments by 8% for…