Oct 31, 2019

How Much Do You Need to Retire?

By United Capital

Photo credit: Getty Images

It’s clear that no single number will fund a satisfying retirement for every individual.

To assist you in determining how much you will need, it may be helpful to calculate the costs of living the lifestyle you want in retirement and then determine the amount of savings it could take to cover those costs for as long as you live.

Looking at the averages can give you a place to start, however. The average American age 65-74 years of age spends about $48,885 a year, according to the U.S. Bureau of Labor Statistics from 2014. The Social Security Administration reports that a third of today’s 65-year-olds can expect to live until at least age 90. Combine these two facts and you could need roughly $1.15 million to fund your 25-year retirement.

Many assumptions have been made to reach this figure, however: it assumes that you’ll be happy spending $46,000 a year, that your retirement will last no more than 25 years and—according to investment research firm Morningstar—that your average return on investment will be 6 percent and inflation will average around 2.5 percent.

Adjusting for Lifestyle and Health Factors

But what if you’re looking forward to an active retirement—traveling, hobbies, fine dining, entertainment, etc? After all, you will have time to do things you may never have been able to do before, and these activities can drive your savings target higher.

Unfortunately, if you have existing health issues, potential medical and homecare bills can also increase your savings target. (On the other hand, if you are very health-conscious and/or come from a family that tends to live to a ripe old age, you may need to increase your savings to fund a longer retirement.)

Many retirees have to deal with both active lifestyle and physical health issues. The first ten years are generally the most active for retirees; you may want to spend more money on fun. Later, as your activities become limited, you may want to spend more money for day-to-day help, especially if you aren’t living close to family or friends.

Reliable financial sources come up with very different recommendations for retirement savings targets, according to Investopedia. Some say $1 million to $1.5 million. Others suggest a multiple from 8 to 12 times your final pre-retirement pay. The best way to find your optimal target figure is to sit down one-on-one with an investment advisor who is dedicated to understanding the life you want and helping you live it.

Calculating Monthly Savings Levels

The most important rule in saving for retirement may be to begin early. Starting at age 40 instead of age 20 can quadruple the amount you need to put aside each month. It can be difficult to make up for missing that early start. However, with care and planning, you may still reach your goals.

How Much You Need to Save to Reach $1 million by age 67*

Age you begin saving: Monthly Savings Level

  • 20: $361
  • 25: $499
  • 30: $699
  • 35: $990
  • 40: $1,436
  • 45: $2,154
  • 50: $3,421
  • 55: $6,072

*based on 6% net annual return [figures from Business Insider]

Since you are an individual with your own sets of priorities, strengths and challenges, just knowing these figures isn’t enough to ensure a successful retirement. Once you and your financial advisor have a clear understanding of what you want your money to accomplish, you should work together to identify the trade-offs you’re willing to make to achieve the life you want to live. What are you willing to give up now to get things you want in retirement? Or what could you give up in retirement to preserve the life you want today? Those are important questions.

Together, you and your advisor should fine-tune your goals, align them with your savings plan, and develop a financial plan designed to effectively leverage your money and time.

United Capital Financial Advisers, LLC (United Capital) provides financial guidance and makes recommendations based on the specific needs and circumstances of each client. For clients with managed accounts, United Capital has discretionary authority over investment decisions. Investing involves risk and clients should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. The information contained in this blog is intended for information only, is not a recommendation, and should not be considered investment advice. Please contact your financial adviser with questions about your specific needs and circumstances. This blog is a sponsored blog created or supported by United Capital and its employees, organization or group of organizations. This blog does not accept any form of advertising, sponsorship, or paid insertions. Certain authors of our blog posts may be influenced by their background, occupation, religion, political affiliation or experience. It is important to note that the views and opinions expressed on this blog are that of the owner, and not necessarily United Capital Financial Advisers. As a Registered Investment Adviser, United Capital does not allow any testimonials on their blog, and any comments deemed as such United Capital will remove.

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