Numerous financial and retirement studies indicate you should plan to make at least 75 percent of your working income to live out your retirement years. Several factors go into considering how much money you need, such as debt, medical expenses (that typically increase as you get older) and your various sources of income.
Whether you are 25 or 75, you tend to have common living expenses when it comes to certain categories. Everyone needs shelter and food, so expenses such as your rent or mortgage, grocery bill, utilities and primarily essential costs of this nature need to be added to your list of expenses. One way to figure out how much you’ll need as the average retirement income is to add up all of your current expenses.
Evaluate, which (if any) of the expenses decrease or increase as you head into your retirement years. For example, one of the primary costs that you have no matter what your age is medical expenses.
As you age, however, the cost for medical care tends to increase. You tend to need to visit the doctor more as you age and the procedures that you tend to need or the medications that you tend to need increase your overall medical costs and expenses.
Decrease of Debt
On the other side, you should also consider the debts that will most likely go away when you retire. For example, many couples no longer have a mortgage on their home or have paid off their credit cards by the time they head into retirement. Car loans, student loans and other types of revolving loans are usually not concerns by the time you retire. The kids are usually out of the house, and you no longer have responsibilities for covering their education expenses or the standard costs of raising children.
Add Up Income
While your salary and wages may go away when you retire, you typically have one or more sources of income. Add up all of the types of income you expect to receive during retirement. This can be from social security benefits, payments from retirement investment accounts, rent from investment properties you own, annuity payments or any other forms of income you will receive.
Compare your expected expenses during retirement with your expected amount of income. See how the two figures compare. If you have more income than expenses, then you are probably in good shape. However, if you have more expenses than you are expecting income, then it is time now to plan a way to make up the difference.
- Pay off debt
- Establish new forms of income
- Work longer
- Take on a second or side job for putting more money into your retirement account
Determining the average retirement income you need to live out your retirement years in the U.S. also has a lot to do with the lifestyle you plan to lead. If you want to live the same luxury level of life you did when you were working a six-figure job, then you are going to have to have more money put away for retirement than if you are willing to live a comfortable but slightly less luxurious lifestyle.
Retirement calculators can help to estimate how much money you need to put away now in order to live out your golden years in the lifestyle to which you are accustomed. The calculator takes your current age and amount of money you can invest, time and any future income you are anticipating to provide you with a close estimate on how much money you need to live during retirement.
Longevity of Life
People are also living healthier and longer lives. This means that if you live longer, you also need to make your money stretch longer. In addition to estimating the amount of money you need to live an average retirement life, you should also plan a small cushion so that your money does not run out before you leave this world.
Pretend to Retire
You should also take retirement on a test run. A few years before you plan to retire, start to live as if you are already retired. Cut back costs where you can, hit the Early Bird specials at restaurants, and use your senior discount coupons and options wherever you can. Taking retirement on a test drive allows you to see what it will be like when it comes time to retire, which means you also have time to make adjustments now so that it is smooth sailing into retirement when the time really comes.
References and Image Credits
Moloney, Vincent, MD, “Retirement Income Needs—Less Than You Think?,” Zero Million, https://www.zeromillion.com/financial-services/retirement-income-needs-less-than-you-think-by-vincent-moloney-md.htmMo