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The idea of retiring would be much less stressful for most of us if we could somehow pin down the right amount to save. After all, it’s hard to say what our living costs might look like five, 10, or 30 years down the line. Not only that, but because we all have varying goals and needs in retirement, it’s pretty much impossible to come up with a single number that will work well for all seniors across the board.
If you’re struggling to nail that retirement savings number, here’s some info that should help to simplify the process. According to the Social Security Administration, the average 65-year-old man today can expect to live until 84.3, while the average 65-year-old woman can expect to live until 86.6. Meanwhile, according to the U.S. Census Bureau, the average retirement age in the U.S. is 63. Using these numbers, we see that the average American male should plan for a 21.3-year retirement, while the average woman should plan for 23.6 years. If we take these numbers and meet in the middle, we’re looking at about 22.5 years of retirement to fund.
From there, it’s just a matter of coming up with enough money to provide the annual income we’ll need when we’re older.
How much income will you need in retirement?
The old rule of thumb used to be that seniors could get away with living off 70% to 80% of their previous income in retirement. But given the way healthcare costs, among other expenses that affect seniors disproportionately, are increasing, those percentages may not cut it — especially considering that nearly half of senior households wind up spending more money, not less, in retirement.
Therefore, to be on the safe side, it’s best to assume that you’ll need to replace 100% of your previous income to cover your bills as a senior, and that you’ll need to do so for roughly 22.5 years. The average American’s household income is $74,000. Meanwhile, the average Social Security recipient collects about $16,320 in benefits each year. If we take that $74,000 figure and subtract $16,320, we arrive at $57,680 — that’s the amount of income the average American will need to withdraw from their savings each year to replace their pre-retirement income. Multiply that by 22.5 years, and we can see that the average American who is near retirement should have about $1.3 million in savings.
Now, before you start shaking your head in disbelief or, worse yet, throwing your hands up in defeat, let’s talk about that number for a minute. We just learned that the average household income in the country is $74,000, and in many cases, that comes from two working spouses. A dual-income household could double that average of $16,320 a year in Social Security benefits to $32,640. When we subtract $32,640 from $74,000, we arrive at $41,360, which, when multiplied by 22.5, gives us a total savings target of just $930,600. That’s still a lot of money, but it’s considerably less than $1.3 million.