Lifestyles vary dramatically from one household to the next, and so do retirement needs. Someone who is accustomed to a 6-figure or higher income will have markedly different needs than someone who has a modest lifestyle. And the length of time spent in retirement can complicate matters even further.
You could retire with $1 million saved, based on the Investopedia Q&A “What’s the Minimum I Need to Retire?” But you could also be well prepared with less. And then again, you might need substantially more than $1 million. There are so many variables, pinning down a number is much more difficult than you might imagine.
There are, however, some ballpark figures that might help you understand your retirement needs a little better. These are some considerations that help:
Living on a Moderate Income
Let’s say you want to have a regular income after retirement of $70,000. If you have $1 million invested, you could expect to receive about $40,000 a year from it, says Investopedia. If you also factor in Social Security, you might achieve an annual income near the $70,000 mark.
Saving $1 million seems beyond the means of a lot of people, but the savings isn’t just the amount you can set aside from your paychecks to go into a traditional savings account. It comes from having a diversified investment portfolio.
Although $1 million seems like a high number, remember that it has to last. And life expectancy is getting longer. Even with investments, there’s no guarantee that you’ll receive $40,000 a year. And if you live well into your 90s, and many people do, there’s always the possibility that something could go wrong. With more money invested and with a more diversified portfolio, you’ll have a better safety net.
Variables to Consider
Today, $70,000 a year might sound like a reasonable, albeit not dazzling, income. Your home might be paid off by 2020. In fact, you could be mostly debt free by then.
However, inflation will cause a dollar to be worth less in 2020, and increasingly so as the years go by. And living a longer life means there’s more time for the cost of living to increase. Consider how the price of a gallon of milk has increased in recent years, and then try to imagine what it will cost in 6 years, or 10, or 20.
You’ll need to think about how you want to spend your retirement. Do you intend to travel? Sell your home? Buy a second home in a warmer climate? Or do you look forward to slowing down, tending a garden, relaxing, and spending much less money than you do today?
Another wild card is health care. Although you’ll likely qualify for Medicare, it doesn’t pay for everything. There are supplemental Medicare plans that many people need to cover what Medicare doesn’t, and those plan premiums come out of your own pocket. Looking even further down the road, you might need long term health care, and you can’t count on Medicare for that.
So How Much Do YOU Need to Retire in 2020 — Or Any Date You Choose
Pinning down what you’ll need to retire is something that takes a tremendous amount of planning. There are no universal answers. There are, however, tools that can help.
New Retirement’s automated online retirement calculator lets you start narrowing down your projected needs, which can help you make adjustments to get you there. In about 5 minutes, you can learn whether you’re on track with your savings, and whether you’ll be able to keep your current lifestyle throughout retirement.
The system will tell you exactly how much you need to retire in 2020 — taking into account variables like:
- How long you will live
- Inflation
- Health care costs
- Your longevity — how long you will live
- And many more details that you might not have considered.
Your retirement plan is unlike anyone else’s. But learning well in advance can help you discover what your goals should be, and give you the tools to help you meet them.
