In 2019, the U.S. Census Bureau, determined that the average national retirement age was between 63 and 64 for men and 62 for women. Most Americans agree that in retirement they’ll need saving to supplement Social Security benefits. Social Security alone will not get them through retirement. The current life expectancy for Americans is 78.93.
Social Security benefits accounts for close to 40% of your pre-retirement income. The average Social Security monthly benefit in 2018 was $1,409.91 a month, or about $16,919 a year. You will need savings to cover the other 60% through a combination of cash, 401k, and other retirement accounts for income. Schwab conducted a survey of its 401k plan participants and found that the participants themselves calculated they’ll need savings of $1.7 million on average to get through retirement.
To figure out how much money you’ll need to support yourself in retirement consider the following:
- Assume you’ll need 10 times your salary. Take your current salary and figure out what it will be when you are ready to retire, assume a 2% raise each year. Multiply that figure by 10 to reach your target savings amount. This number will provide you with an immediate understanding of your current state of affairs and provide actionable direction to save more or less money to calculate how much money you should save in your nest egg.
- Understand your annual withdrawal budget (the amount of money you should withdraw from your retirement accounts each year). Income you withdraw from a 401k plan for example is tax deductible.
There is no one-size-fits-all approach to determine how much money you’ll need to retire. Your individual situation may vary widely from peers and relatives, so asking others how they did it may not be too helpful to determine what you need. Questions you should ask and answer for yourself are:
- How far are you from retirement?
- What is your income?
- How is your health?
- Are you suffering from a chronic condition with out-of-pocket costs that are not covered by your health insurance plan or prescription coverage.
- Are you willing to continue to work, even on a part-time basis, to supplement retirement and Social Security benefits?
- Will your living expenses (i.e. real estate taxes, rent or mortgage, upkeep of your home) change?
It is never too late to save for retirement. If you find that you are short funds for retirement, start saving and cutting expenses now.