Current savings
How much you have been able to save so far is your starting point when determining how much more you'll need. If saving at your current rate proves not to be enough for when you want to retire, you'll need to make changes to increase the amount. Your retirement savings would include a combination of a 401(k), an IRA and any personal savings accounts. Merrill Edge states that a nest egg of $300,000 will yield approximately $12,000 the initial year if you retire at 65. A savings of $1 million will enable you to withdraw $40,000 the first year. These are general guidelines for determining how much you'll need for a comfortable retirement.
Life expectancy
It's important to take your probable life expectancy into account when planning for how much money you'll need throughout retirement. If your parents lived well into their nineties and you're in good health, there's a high chance you'll live beyond the average life expectancy as well. There's a big difference between living to 95 as opposed to 75 when planning for retirement. The Social Security Administration has a life expectancy calculator that can help determine how long you'll likely live. It's also necessary to take into account lifestyle habits such as smoking and how much you exercise.
Expected retirement age
Planning to retire at 55 will take considerably more money than retiring at 60 or 65. Money states that if your goal is to retire at 55 you'll need 18 times your yearly income to replace 75 percent of what you would annually earn. It's often estimated that you'll need 70 percent to 80 percent of your previous income each year in retirement. This estimate is based on the assumption that you won't be putting a percentage into savings for retirement and that you may have a pension to draw on as well as other investments. However, depending on the lifestyle you want to live, this may not be enough.
Retirement lifestyle
Whether you want to primarily stay at home and take care of the grandchildren or travel the world will have a major impact on how much money you'll need. Lifestyle choices can make as much difference as potential life expectancy and retirement age. You'll need to ask yourself several questions regarding what your retirement will look like. What kind of hobbies and activities will you likely want to participate in while retired? How much money will these activities require? Will you want to work part-time to supplement your retirement? These are just a few of the things you'll need to take into consideration when deciding what type of lifestyle you'll live during retirement.
Income & investments
Most estimates for how much you'll need for retirement are based on your current income. A percentage of your income will need to be put in various savings plans in order to meet your retirement goals. You'll also need to calculate how much return you're likely to get from each of the investments you have.
There are several factors to consider when planning for your golden years. You need an adviser with the experience and expertise to make sure you can live comfortably while pursuing your retirement dreams. TDECU Wealth Advisors (TWA) can help you figure out how much you'll need for retirement and the best ways to reach your financial goals. Contact TWA to start planning for your retirement today.
Sources:
AARP - https://www.aarp.org/work/retirement-planning/info-2015/nest-egg-retirement-amount.html
Social Security - https://www.ssa.gov/planners/lifeexpectancy.html
Merrill Edge - https://www.merrilledge.com/article/how-much-do-you-really-need-to-save-for-retirement
Money - time.com/money/3045776/early-retire-55-how-much-need/