How Much Money Do You Need to Retire?

A Quick, Simple Way to Figure It Out

Figuring out how much money you need to retire can feel like the hardest math problem you’ve ever faced. But there are some simple ways to estimate how much to save to support your desired lifestyle.

One of the easiest methods to give you a solid ballpark estimate is the guaranteed income difference:

To come up with how much you’ll need to save, start with money that’s guaranteed to come in during your retirement. Subtract the expenses you realistically expect to have. The difference between those numbers is the amount your savings will need to support every month. Multiply that monthly difference by 12 (to get a year’s difference) and then by 25 or 30 – the number of years you expect to spend in retirement.

We’ll walk through this planning tool step by step. And if you need more support, contact me.

Total Up Your Guaranteed Income

Guaranteed income is money that you will absolutely receive no matter what. It doesn’t depend on the economy, on your investments, or how much you have left in savings. This is set income that you can count on (though some sources might come with time limits, like a ten-year annuity, for example).

Guaranteed Income Sources Monthly Income Amount Where to Find the Number
Social Security Create a My Social Security account at www.ssa.gov
Employer Pension From the employer
Fixed Annuities In the annuity contract or from the annuity provider
Other guaranteed income (such as alimony or lottery winnings)
Total guaranteed income    

Budget for Post-Retirement Expenses

To budget for post-retirement expenses, you’ll need to have a general idea about where you’ll live and the types of activities you plan to do (like travel or volunteer work). Split your expenses into essential needs (things you absolutely can’t live without), and things you want that aren’t strictly necessary (discretionary expenses).

Some expenses (like mortgage payments) may stay the same; others may vary dramatically (like commuting costs). To be on the safe side, use conservative estimates – what you think the maximum expense for each category would be. You can base your estimates on how much you spend in each category now, adjusting for expected changes once you retire. Click here for downloadable Excel Spreadsheet version.

Expected Retirement Expenses  
Essentials Monthly Expense
Housing (mortgage or rent, property taxes, insurance)  
Housing repairs and maintenance (snow removal, yard work, housekeeping service, general repairs, etc.)  
Utilities (gas, electric, water)  
Phone service  
Internet service  
Food (groceries and household staples)  
Personal care items  
Clothing  
Healthcare (insurance premiums, co-pays, prescriptions, etc.)  
Other insurance premiums (life, long-term care, disability)  
Car (loan payment, insurance, license and registration)  
Car upkeep (fuel, repairs, maintenance)  
Public transportation  
Income taxes (federal, state, local)  
Debt payments:  
     Home equity loan  
     Student loans  
     Credit cards  
     Personal loans  
Total Essential Expenses  
   
Discretionary Expenses  
Dining out  
In-home entertainment (cable, streaming services, etc.)  
Memberships and subscriptions  
Gifts  
Charitable giving  
Travel  
Hobbies and activities  
Support for family members  
Total Discretionary Expenses  
   
Total Essential and Discretionary Expenses  

Calculate Your Additional Income Needs

The next step is to figure out how much extra income you need your savings and investments to supply.

You’ll do this by subtracting your total monthly expenses (essential and discretionary) from your monthly guaranteed income. The difference – whatever that is – is the amount you’ll need to pull from savings every month to fully cover your expenses.

Total Guaranteed Monthly Income                                 _

_______________________

Minus

Total Monthly Expenses                                                   

________________________           

Equals

Monthly Additional Income Needs

________________________

Now that you know how much money you’ll need to pull from savings each month, you can come up with a ballpark estimate of how much savings you’ll need to have going into retirement.

First: Multiply your monthly additional income needs by 12. That tells you the amount you’ll need to take from savings every year – your annual additional income needs.

Then: Multiply your annual additional income needs by the number of years you expect to spend in retirement – at least 25 or 30 years. That gives you a good estimate of the amount you’ll need to have saved all together, including all retirement and non-retirement savings you already have.

Here’s an example:

Meredith will receive $3,500 a month from guaranteed income sources. Her expected monthly expenses in retirement come to $4,800 per month. She expects to spend 30 years in retirement.

Meredith’s Total Guaranteed Income                                  $3,500

          minus

Meredith’s Total Monthly Expenses                                    $4,800            

Monthly Additional Income Needs                                      $1,300

Meredith’s annual additional income needs = $1,300  x 12 = $  15,600

Meredith’s total savings goal                         =$15,600 x 30 = $468,000

Now, this simplified method makes a great starting point, but it leaves out a lot of factors like investment earnings and losses or inflation, for example.  To add in more variables (like projected investment returns, for example) or to look at different what-if scenarios, you can try an online retirement calculator or connect with a qualified fiduciary financial planner to help you.

If you decide to give DIY a try, there are some good online calculators to use. You can use as many as you want, as each asks slightly different questions and offers different results. Looking at the results all together will give you a good idea of how much you’ll need in order to enjoy your ideal retirement.

Remember, none of these calculators will be perfectly accurate (they can’t possibly be). The best will give you realistic outcomes based on the information you supply so you find out if your savings are on track.

Some of the best online basic retirement calculators include:

These online calculators come let you plug in more variables and run different scenarios:

Keep in mind that any online retirement planner you use will ask for a lot of personal financial information. Make sure to only use secure websites and do not use public Wi-Fi when you run the numbers.

Click here to download this worksheet.

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram