Many in the Baby Boomer generation are on the brink of retirement, leading to a surge of Americans preparing for or already in their golden years. In fact, from 2012 to 2022, the number of Americans drawing from Social Security rose by a substantial 10 million.
But, just because you know how much you'll get in retirement doesn't necessarily mean it will be enough to live on. It's different for everyone. We discuss some key things to consider:
It's About Your Income, Not the Money
When considering your retirement number, it's not just about saving a certain amount. Many Americans aim for a $1 million retirement fund, but that's not the whole picture.
What matters is if you'll have enough money coming in regularly to maintain your lifestyle when you retire.
Can $1 million provide you with a steady income for life? It might, or it might not.
What Is Your Retirement Number?
Experts have many tips about this number, but there are basic rules you can follow:
Planning When You Retire
Your retirement age directly influences your savings target. The longer you work, the more you save, the fewer years you'll need that savings, and the bigger your Social Security benefits.
There might be other factors like health or job opportunities that might change plans. However, the theme remains: longer work years can ease your retirement savings journey.
Determining What You Want
To figure out your retirement savings, split your future into "needs" and "wants."
Needs: Think basics. Paid off your house? No debts? Great, you'll probably need less each year.
Wants: Maybe you want to travel the world, try global cuisines, or buy that dream beach house. What’s on your retirement bucket list?
How you answer these questions shapes your retirement budget.
Dream big, but also be detailed. There are many tools that help you calculate your future estimates and even adjust for different retirement phases.
Checking Your Reliable Income Sources
While savings are essential, many retirees benefit from other income sources. Social Security is a mainstay for many people, but it might cover more expenses for those with lower prior earnings.
Don't forget other potential income streams either, like pensions or annuities you might have. For instance, for a couple who needs $8,000 every month: if they each anticipate $1,500 from Social Security, and one has a $1,000 monthly pension, they already have half their needs ($4,000) met. The other $4,000 must come from their savings or other investments.
Considering how much to take from savings yearly, it's good to remember the 4% "prudent withdrawal rate." This guideline suggests you can safely take out 4% of your savings annually, ensuring you don't outlive your money.
For example, with a neat savings of $1 million, this translates to drawing $40,000 a year or about $3,333 per month. Taking our couple as an example, adhering to this 4% rule would net them an extra $3,333 every month, leaving just a small gap of $667 to bridge, either from other income sources or slight budget tweaks.
So How Much Do You Need to Retire?
Perhaps the best response to "How much should I set aside for my golden years?" is simple: start saving.
Put away whatever amount you can invest wisely to see it grow and ensure you don't end up with anything when it's time to retire. Plenty of affordable resources are available to guide you.
It’s important to remember that there’s no one-size-fits-all retirement savings goal. While the ballpark for many hovers between $2M-5M, what's most essential is how you approach your savings. Strive to save at least 15% of your annual income. Consistently doing this throughout your working years can significantly boost your chances of achieving your retirement goals.