How much will retirement cost? If that question stops you in your tracks, you’re not alone. A 2018 Bankrate survey found 61 percent of Americans don’t have a clue about how much they need to save for their future. That’s alarming news, considering pensions have dissipated and individuals are now expected to rely on themselves more than ever when it comes to saving for their future.
You may have heard from some experts that a person needs about a $1 million in the bank to retire comfortably, or perhaps even a more modest estimate of what it might take. But with all of the advice out there, how can anyone know which figure is most relevant to them?
“That is the million dollar question: How much do I need to retire?” says Brent Weiss, CFP, head of planning at Facet Wealth. “But it really comes down to each person — every situation is unique.”
If hearing that makes you feel even more uncomfortable when considering your future, don’t worry — there are ways to calculate how much you need, and while they aren’t perfect, knowing these figures will help you create a savings plan to get you on track for your future.
What is the average cost of retirement?
Calculating the average cost of retirement is nearly impossible, says Leslie Thompson, CFA, managing principal at Spectrum Management Group. Every individual will have unique spending habits that influence how much they’ll need to save for their future.
“We don’t need to say, ‘I know I need this exact dollar.’ We just need to get started,” Weiss says. “The key to everything that retirees need to do is just start saving today and we’ll figure out the right number as we get more clarity around this nebulous thing we call retirement.”
There are general rules of thumb, however, to help individuals understand just how much they’ll need to start squirreling away. For example, Fidelity says individuals should save at least one times their salary by age 30, three times by age 40, six times by age 50 and 10 times by age 67. These savings factors are based on a variety of assumptions, including someone saving 15 percent of their income annually starting at age 25.
Other rules of thumb include saving between 70 and 80 percent of your pre-retirement income. This means an individual needs to save enough to replace 70 to 80 percent of their income each year.
These figures may sound like a lot, but they don’t account for every cost in retirement; Weiss describes these as “unknown costs,” which can include healthcare costs. He adds, however, that supplementing retirement funds with long-term care insurance can be a great way to ensure someone won’t run their retirement fund dry as they age.
“Long-term care expenses can be devastating for a family,” Weiss says. “And if you try to plan for all of the contingencies and unknowns in retirement, you’d have to pay $10 million or $15 million hoping and planning for things that might not happen.”
The good news: Weiss says most people actually spend less in retirement than they did while they were still working — this is likely because they are no longer funneling their income toward saving in retirement accounts or for other items, like 529 plans or car payments. Plus, these figures include buffer room for unknown costs.
How much does it cost to retire at different ages?
The concept of retiring early is one that has gained momentum in recent years. But whether you’re planning on retiring at age 45 or 65, the amount you should have saved doesn’t change.
“It seems surprising but the biggest difference is you’re trying to create the same nest egg earlier,” Weiss says. “You have to save much more in a shorter amount of time, which can be challenging.”
Another challenge of retiring early is having to go without supplemental income from Social Security, which isn’t available to Americans until they reach full-retirement age.
“It can be difficult because you’re likely in your most expensive years, raising a family or trying to save for college and you’re also trying to save more because you have to plan for a much longer retirement period,” Weiss says. “But retirement for our clients is all about success in their own words.”
[READ: 11 best retirement plans]
How to calculate your average spend a year
Your first consideration should be taking a look at your expenses. If you’ve got a budget, you’re a step ahead of the game, because at this point you really need to know what you spend on a daily basis. If you don’t have a current spending plan, it’s time to start tallying numbers, from groceries to entertainment, mortgage or rent, utilities and so forth.
There are a slew of ways to get a handle on these costs. Keep track of bills and receipts for a month or two, or use financial software or apps, like Mint or You Need a Budget (YNAB) to help.
“Budget trackers can really help you understand how you’re spending your money and they allow you to evaluate,” Thompson says. “Do you really need all of these things? Are they necessities? Can you pay yourself first and establish an automated savings program instead?”
After adjusting your budget, keep the final number in mind for how much you’re spending each month and adjust your savings plan accordingly.
How much money will you need per month in retirement?
Maintaining your current lifestyle is a must while in retirement — no one wants to be miserable while phasing out of the 9 to 5 grind. But how do you know how much you’ll need in income each month?
After figuring out your annual spending needs, experts recommend dividing it by 12 to find your monthly spending. While calculating this figure, it might be a good opportunity to think about where you plan to retire — because not all locations have the same cost of living.
Do you want to retire on a beach? Or maybe in the mountains? According to a 2018 analysis by Bankrate, the best states for retirement are South Dakota, Utah, Idaho, New Hampshire and Florida, to name a few. These states are tax-friendly with lower standards of living, meaning you’ll get a better bang for your buck when spending your hard-saved retirement dollars.
On the other hand, some states are more likely to suck your retirement accounts dry, like New York, Maryland, New Mexico or Arkansas. If you’re looking for a location with low monthly costs, definitely stay away from these states.
[READ: How to open a Roth IRA]
Take steps to get (and stay) on track
If your savings lags behind your spending requirements, take solace in the fact that you can take steps to close the gap and get on track. And you’ll have lots of company.
More than 80 percent of retirees are confident they will have enough money to live comfortably throughout retirement, according to a study by the Employee Benefits Research Institute. But the same research finds that many still would find it helpful if their workplace offered education or advice on managing financial priorities, like budgeting and saving for the future.
At this point, many individuals may find that a little guidance can help. A financial planner or adviser can run a more sophisticated risk and tax-analysis of your retirement portfolio, help you select the best investments to reach your goal and meet with you periodically to ensure you’re on track to reach your target.
Groups like the Financial Planning Association have listings of planners in your area and you can find fee-only planners at the National Association of Personal Financial Advisors. These are a good choice if you just want to give your plan an occasional review or tune-up, and not necessarily hire someone to manage your assets on a day-to-day basis.
Word-of-mouth recommendations from friends and family may be helpful, too. But no matter how you track down help, make sure the person you tap has experience in retirement planning (as opposed to, say, tax planning). The same advice goes for finding someone who’s used to helping people in a similar situation as yours, says Dee Lee, author of several books including The Complete Idiot’s Guide to Retiring Early.
“If you’re a fireman with a 457 plan, you want someone who understands those,” says Lee. “If your brother-in-law is a dentist he may see someone who understands small businesses. Find someone who understands your particular needs.”
(Check out Bankrate’s retirement calculator to help you set your savings goal.)
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