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Give it to me Straight…How Much Do I Really Need to Retire Comfortably?

Only a short while ago Baby Boomers became the biggest generation in American history. Since then, Millennials and Gen Z have surpassed their number. But because the Baby Boomers are getting older, and more and more of them have reached retirement age, we are now in the middle of the biggest wave of people entering retirement in history! The mass retirement we are seeing (that will peak this very year!) is known as the ‘Silver Tsunami’. 1

Because of the silver tsunami, now, more than ever people are asking the question: Do I have enough money saved to support me in retirement? Not only are the new retirees worried about how much they have saved they’re also worried about how long what they have saved will last. What is the ‘right’ amount of money you’ll need so you can withdraw enough annually to be able to live comfortably? 

Not only do current retirees have these concerns, but so do many others, who are looking toward their future retirements.  The old standards for retirement income are becoming less certain, especially since the quality of life has been going up and with it the average life span. Many people are debating whether they should retire at the once-official retirement age (65) or wait a few more years and retire at 70, or later. Sound familiar? 

The subject of retirement is fraught with unknowns like: what is your life expectancy? Will you have unexpected medical costs? What will the markets look like in 20, 30, or even 40+ years? Will you be supporting only yourself? Or will you need to support others? Many of these questions can be uncomfortable to contemplate, and many people of all generations from Boomers to Generation Z have bleak views of the future, maybe more so than ever before.2 And maybe, for you, the future may seem very bleak, indeed. But, it doesn’t have to be. In fact, once you start saving for retirement, and figuring out what you want your post-retirement life to look like, you can begin looking forward to it. Maybe, you’ll want to move closer to your future kids and grandkids and watch them grow. Or maybe you want to spend your retirement traveling the world?  Or taking that road trip you’ve been dreaming of?  Or, perhaps, relaxing at spas? The possibilities are endless when it comes to retirement as long as you begin saving sooner than later.

The good news is that you don’t have to walk into retirement with no clue as to what your options are. And, yes, it can be daunting to think about. It can be uncomfortable to talk about with your partner or peers. Even though your retirement may seem far off, and even if you’re just now entering the workforce, it’s recommended that you begin saving for retirement by age 25!3  Starting early is important because you can invest your savings and/or build interest in the bank. The earlier you start will also help you navigate any market or financial downturns. If you start saving at 25, it’s recommended that you save at least 15% of your pretax income. Maybe that’s just not possible for you right now. But, if you don’t start till later, say, at 30, the desired amount to save would be 18%, and if you wait even longer, then I suggest you save 23% of your pre-tax income. Institutions, like Fidelity Investments, have analyzed the national data that is publicly available showing the spending habits of the average retired American citizen. They concluded that most people rely on their retirement savings to provide 45% of their ‘retirement income’. The rest of their income can be made up of Social Security and pensions. So, when you are planning how much you need, there is a lot to consider! Some things will be uncertain and you’ll have to make an educated guess about them, such as your lifespan, medical expenses, etc. Other things will depend on your plans for employment, for family, and the type of lifestyle you want to have. So, how do you calculate how much you’ll need to comfortably support the lifestyle you imagine?

You may have seen articles online that will tell you an exact amount of money they think you need to save in order to support yourself.  But, retirement savings aren’t a ‘one size fits all’ type of thing. You have to account for your own personal spending habits; the amount of income you have and likely will have in future; how long you have available to save; what sort of pension plan you might have; or how much Social Security you will be able to rely on. There are a lot of variables here. This isn’t to say that it is impossible to calculate how much you as an individual should save, just that I can’t give you the exact number. Instead, I can tell you how to figure out how much you should save in order to meet your anticipated monthly expenses.  Once you do that, you’ll know what you need to have to support you through your retirement.

To start, let’s go over some ‘general rules of thumb’ that can be used to guide your calculations. I will say upfront that this is often the most difficult part about saving for retirement because you have to be honest and as accurate as possible about your spending habits and how much you make. And you should also take the time to reevaluate your savings plan every couple of years to make sure it continues to fit the life you are living and want to have in retirement. So the first general rule of thumb is that if you start saving by the age of 25, you should save 15% of your pre-tax income annually.

You can assume that, when you retire, to support yourself you will need to have an annual income of 55%-80% of your pre-retirement annual income. You can derive this figure by asking yourself how much money you can take out of your savings to pay for your expenses in retirement month by month (it’s a lot more manageable to consider monthly expenses than annual ones). Then, calculate what is known as a ‘prudent withdrawal rate.’ The prudent withdrawal rate is the amount of money you take out monthly in order to support yourself without overspending. You do this by adding up your current monthly expenses like: rent/mortgage payments, utilities, groceries, clothing budget, travel expenses, insurance payments, etc.  Statistically, according to the Bureau of Labor Statistics, Americans 65-years or older spend about $3,800 a month or $45,756 annually.4  This isn’t necessarily the number you should be shooting for but it is a benchmark starting point for you to consider while you are deciding on what your average monthly retirement rate will be.  Now, that’s all assuming everything goes smoothly, and according to plan. But I also strongly recommend that you should set aside an emergency fund that can support you for 3-6 months. After all, life is unpredictable and it’s best to be prepared for an emergency that could occur. (And then, if you don’t need it, so much the better).5

As you begin saving for your retirement, you should already have considered the 15% rule. But to give you a more detailed guide to aim for, I suggest that when you are 30 you should have saved an amount equivalent to your annual income. By age 40 you should have saved 3x your annual income; by 50, a good rule of thumb is to have saved 5x your income; when you reach 65, the traditional age for retirement, you’ll want to have saved 7x your income or more.6 This isn’t a strict plan for your retirement savings, but you can use it as a guide to give you a ballpark estimate of what you want to aim for as you b

egin saving. Ally Bank and Fidelity Investments both recommend that if you are worried you’re behind on your retirement savings (yes, it happens), you should consider making a ‘catch up contribution’, which is essentially adjusting your retirement plan to make additional contributions to the account once you hit age fifty.

Retirement planning is fraught with so many ‘what ifs’ and unknowns that it can be difficult to plan and unpleasant to think about. However, just because it is intimidating to consider, doesn’t mean that figuring out how much you need to save is impossible. Rather, if you take your time, do your research and due diligence, and honestly assess your income and how much the retirement lifestyle you want will cost, you can plan for the future while accounting for the numerous unknowns. As you can see, it makes a lot of sense to start early, and I recommend starting sooner rather than later. But if you haven't, it's not the end of the world! There are plenty of retirement plans that will assist you if you start saving later.

The future will be bright as long as you are prudent, honest about your spending habits, and are aware that life is unpredictable. You’ll be able to travel the world, pick up that new hobby, or, if you aren’t the type who seeks a slowed down lifestyle you can even start a late-in-life career. The possibilities are endless once you take the time to plan!

Written by Matthew Delaney


1 Deibel, Walker. (2018) Buy then Build: How Acquisition Entrepreneurs Outsmart the Startup Game. Lion Crest Publishing. 2 Pew Research Center (2008). “Baby Boomers: The Gloomiest Generation” accessed on 9/31/21. 3 Fidelity Viewpoints. (7/29/2021) How Much Should I Save for Retirement? Accessed on 10/20/21.  4 Financial Samurai (09/04/2021) “The Average Spending Amount In Retirement Is Surprisingly High” accessed on 10/21/2021 5 (06/24/2021) “Savings by Age: How Much to Save in Your 20s, 30s, 40s, and Beyond” accessed on 10/21/2021 6 Ibid


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