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Clueless About How Much To Save For Retirement? Here’s A Simple Guide

Clueless About How Much to Save for Retirement? Here’s a Simple Guide

If you’re like most people, you know you must save something for retirement — but you probably don’t know exactly how much. As many as 81% of all Americans don’t know what amount of money they’ll need to retire, which may explain why only around 18% of us are confident we will have enough.

If you want to make sure you don’t run out of money, the first step is setting a savings goal. This simple four-step guide will show you how to determine exactly what you need to save so you can look forward to retirement with the certainty that you won’t run out of cash.

Senior couple on beach
Image Source: Getty Images.

1. Estimate what you’ll need to spend each year during retirement

Your retirement income must provide enough for you to live on — which means you need to know how much you’ll live on. One rule of thumb is to assume you’ll spend 70% of the income you earned when working. If your salary is $80,000 right now, then you’d need $56,000.

However, this rule of thumb typically only works if your mortgage is paid off, you don’t have high medical bills, and you’re not jetting around the globe on a senior world tour. If you’ll still be in debt, if you’re in poor health, or if you plan to move to indulge expensive hobbies, then you actually may end up spending more than when you were working.

To arrive at a reasonable estimate, consider how your current expenses will change and create a “sample budget” for retirement living. If your mortgage will be paid off but you’ll take one costly trip each month, your costs may stay the same. Don’t forget to consider potential health expenses as you get older, as a senior couple with high prescription drug costs could spend as much as $350,000 on medical care during retirement.

2. Figure out what you’ll be getting from your pension and Social Security

Calculating your expected budget is only half the equation. You also need to know how much money you’ll have coming in.

Traditionally, there was a “three-legged” stool that supported seniors during retirement: Social Security, a defined-benefit pension plan from an employer, and savings. Savings are the only variable you can control, so figure out how much support the other two legs will provide.

Only 13% of private-sector workers had a defined-benefit pension plan as of 2013, but if you’re one of the lucky ones with this type of guaranteed retirement income, talk with your plan administrator to find out what your expected pension benefits will be. Your age at retirement and the length of time…

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