Retirement sounds great, but how much retirement income do you need?
Lying on the armchair, enjoying a beverage and newspaper early morning. No tension about how to manage the expenses, or how to make more money. These are the hopes of most retired Americans. But this requires wise planning of retirement income well ahead of show time. So, how much do you need to retire?
We’ll forget the fact that this is subjective for a moment. A person may be used to a certain way of life and aim to continue that into retirement. While someone else may look to slow down and reduce spending. You need to determine the type of retirement you plan on having. This will greatly determine the amount you need to save.
Let’s first understand what retirement income really means.
Retirement Income.
The amount of money a person earns after retiring based on retirement savings assets, Social Security allowances, pensions, stocks, mutual funds, savings accounts,
CDs, home equity funds, annuities, insurance, rental income, royalties, or inheritances is all considered retirement Income.
Calculate your living costs.
The first step is to figure out your current expenses. This can be more clearly done by preparing a budget to track the expenses. An average American retiring at the age of 67 would require savings of 8-10 times their annual salary in their 60’s.
Tighten down your budget.
Having chalked out the monthly budget, the next step is to resort to cut down overspending. Start with things like entertainment, dining, movies, etc.
This way, you can ensure handsome savings that can fill your nest egg which will mature after your retirement. Saving up to 15% of your income for retirement will land you in a very good position.
Prepare Your savings Calculator.
A simple calculation of how much you’ll need to save before you retire can be very helpful. Divide the annual retirement income by 4% which will be the maximum amount you will withdraw to pay for your living expenses after retirement.
For example, $ 40,000 ÷ 4% = $1,000,000
Many financial experts suggest that you want to replace between 70% to 85% of your pre-retirement income. So, if you earn $100,000 a year, your goal should be to create enough retirement income that you would be able to survive on somewhere between $70,000 to $85,000 per year.
If the 4% rule is applied to this amount, we can expect $40,000 in retirement income. Social Security will account for roughly another $40,000 per year, which isn’t an unreasonable benefit amount for average Americans.
Track your expenses and Savings.
As difficult as it may seem, it’s very crucial to prepare a budget to keep track of expenses and savings. Ignorance of cash flow and spending patterns can end up worsening the situation. So, plan your savings and employ good savings tools.
According to the Government Accountability Office (GAO) analysis in October 2017, the median retirement savings for average Americans between age 55 and 64 was $107,000.
Estimated Median Savings:
The average American in his fifties has little time to save after all his living expenses, children’s education fees, car payments, gasoline, medical bills, and many other hidden expenses. The estimated median savings for an average American would be $117,000 plus contribute an extra $1,000 per year to IRA and $6,000 per year to 401(k).
The Average Retirement Savings differ depending on age factor. Like the majority of people, you probably need to speed up your retirement-saving efforts. An October 2017 Government Accountability Office (GAO) analysis found that the median retirement savings for Americans between age 55 and 64 was $107,000.
Don’t ignore healthcare costs.
A common mistake which affects many seniors is they forget to include the healthcare costs while planning for the savings for retirement. These can be very expensive if their Medicare does not protect them from huge healthcare expenses. Bureau of Labor Statistics reveals that mean healthcare expenses for retired Americans is as close to $6,000 annually.
Determine your Pension plans.
Will you have a pension after retirement? This retirement income will help you a lot. If you’re unsure, talk with your HR department to find out your pension plans which may help to save money to be used after retirement.
Bottomline is that the amount needed to be saved for retirement is different for everyone. But you can plan and hit certain benchmarks throughout your life. It’s never too early in one’s career to chalk out a plan for savings, but it’s never too late to start, either.
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