One of the first questions most people ask when they’re considering how much to save for retirement is: How much money do I need to retire?
Well, the answer is: It depends!
Whether you picture yourself traveling the world or working in your garden, the financial planning component of your retirement dreams will be as unique as your plans themselves. Here are a few key tips to keep in mind as you plan and save for your retirement:
- Experts recommend that you plan on needing about 80% of your annual working income to maintain your lifestyle into retirement. By the time you reach retirement age, your home might be paid off and your dependents will be out of the house; however, you’ll likely have increased medical expenses compared to your working years. A good rule of thumb is to target 80% of your annual income to draw on for each year of retirement.
- Many people underestimate the amount they will need for retirement, partially due to the fact that people are living longer than in the past. Did you know the Social Security Administration reports the average 65-year-old male can expect to live until age 84? The average 65-year-old female can expect to live to age 87 — and those are just averages. For a couple who is 65, there is a 50% chance one of them will be alive at age 92. It’s likely you’ll need to fund your life after work for 20 years, 30 years, or beyond.
- Many of us are counting on Social Security as a significant source of retirement income. But, the reality is: Social Security likely won’t be enough for you to live on. It will not get you to the targeted 80% of your pre-retirement income. In 2018, the average Social Security retirement benefit was $1,461 per month, or $17,532 annually. While this income is a great start, it is critical that retirees have other sources of income to supplement their anticipated Social Security income.
Contributing to a company-sponsored 401(k) allows you to save aggressively during your working years in preparation for retirement. The IRS annual limit for 2019 is $19,000 with an additional $6,000 allowed in catch-up contributions for participants age 50 and older.
Are you on track for your retirement goals? Take advantage of your Nextep 401(k) team’s expertise and allow us to partner with you to ensure that you are on track for the future of your dreams. You can also use a retirement savings calculator to help set your monthly contribution goals.
