Retirement Planning, Elder Law, and Senior Finance

4/1/2021 | By Seniors Guide Staff

Retirement experts provide several rules of thumb to help you figure out your retirement funds and how much money you need to save before retiring: somewhere around $1 million, 80% to 90% of your annual pre-retirement income, or 12 times your pre-retirement salary are just three of the suggestions.

The truth is that how much you will need in retirement depends primarily on your current income and what kind of lifestyle you are expecting. But with all the variables that retirement planning engenders, many of which are beyond your control, how can you arrive at an accurate figure?

Retirement planning is not an exact science. You begin the process realizing that you will end up with a ballpark estimate at best. But that’s okay. Knowing that you are on track for a comfortable retirement, whatever that means for you, is well worth going through the exercise.

How Much Should You Be Saving?

If you want to know how much you will need for retirement, you need to know how much you should have accumulated at each stage in life. The investment company Fidelity has come up with a helpful formula to keep you on track:

Save 15% of your gross salary beginning at age 25 and invest at least 50% in stocks. Fidelity suggests that by the age of 30, you will have accumulated an amount close to your annual salary. Continue this savings rate for your retirement funds, and you should have accrued these amounts at the following milestones:

  • At age 40, saved two times your annual salary
  • At age 50, saved four times your annual salary
  • At age 60, saved six times your annual salary
  • At age 67, saved eight times your annual salary

Even if you set out to follow the 15% savings guideline, your ability to save could be affected by life events such as major home repairs, credit card debt, and higher-than-expected monthly expenses.

Base Your Retirement Savings Goal on What You Expect to Spend

While having a dollar amount or percentage can give you a rough idea of how much you will need for retirement, how you plan to spend your money will also factor into your planning. The following table is based on data from the Employee Benefit Research Institute (EBRI). It indicates how older adults are spending their money and how those spending patterns change over time.

 Age 50-64Ages 65-7475 and older
Food12.6 %13.3%11.9%
Misc. Spending3%3.9%5%

Of course, you might see your lifestyle changing more radically than is reflected on the table. Perhaps your goal is to travel extensively, entertain more, or have a second home at the beach or in the mountains. You will have to plan for that and probably increase the amount you save to reach those goals.

Consider All Your Potential Income Sources at Retirement

As you determine how much money you will need in retirement, remember that the amount you decide to save and invest is only one element of your future retirement income.

Most Americans will have Social Security as the mainstay of their retirement portfolio. Other sources of income could include money from a 401(k) retirement account at work, pensions, the proceeds from the sale of a business or house, an inheritance, or rental income.

And there is one more possible source of income that you might think is an option.

The Top 10 Second Acts After Retirement

Working in Retirement

Some people fail to save as much as they will need in retirement because they plan to keep working. And while this works well in theory, the reality is quite different. Another survey from EBRI found that American workers are much more likely to anticipate working in retirement than end up doing so. In EBRI’s latest report, 71% of respondents indicated they planned to work in retirement, while just 31% of retirees report they have worked for pay in retirement.

Be realistic about your expectations. Whatever retirement funds you can save and invest now will make the most significant difference in your future.

Seniors Guide Staff

Seniors Guide has been addressing traditional topics and upcoming trends in the senior living industry since 1999. We strive to educate seniors and their loved ones in an approachable manner, and aim to provide them with the right information to make the best decisions possible.

Seniors Guide Staff