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It’s not about money, it’s about income
When figuring out your retirement “number,” it’s crucial to remember that it’s not just about choosing how much money to save. For instance, having a $1 million nest egg is the most common retirement goal among Americans. But this is faulty logic.
Whether you’ll have enough money to generate the income you need to maintain your desired standard of living after retirement is the most crucial factor in figuring out how much you need to retire.
Is it possible to earn enough money with a $1 million savings account forever? Maybe, but maybe not. Thats what were going to determine in this article.
The bottom line on retirement savings goals
There is no one right way to figure out how much money you should save for retirement. The performance of your investments will fluctuate over time, and it can be challenging to predict your true income requirements.
It’s also important to note that there are differences amongst retirement plans in terms of income. Any money you take out of a 401(k) or traditional IRA will be subject to taxes. However, any withdrawals from a Roth IRA or Roth 401(k) are typically not subject to any taxes, which could slightly alter the computation.
There are other potential considerations as well. Many workers have to retire earlier than they planned. For instance, the COVID-19 pandemic caused about 3 million workers to retire earlier than they had planned.
Even in good times, layoffs, health issues, or caregiving responsibilities frequently force older workers to retire early. Putting money aside for a longer retirement than you plan on gives you a safety net.
It’s crucial to take inflation into account when making retirement plans. In 2023, inflation has gained significant attention due to the fastest-paced price increase in four decades.
However, senior households are more negatively impacted by inflation than working-age households, even when costs rise at a typical rate. This is due to the fact that seniors spend a larger percentage of their income on housing and healthcare costs. These costs typically rise more quickly than the rate of inflation overall.
Even though we’re only covering the broad strokes here, it’s still a good idea to speak with a financial advisor who can help you set realistic goals for your savings and investments and who can also help you customize a retirement savings goal for your unique circumstances.
Using the techniques covered in this article, you can determine roughly how much you’ll need to save in order to live comfortably in retirement. Remember that this is just a starting point to assist you in evaluating where you are and any necessary adjustments to reach your desired destination, not an ideal approach.
How to Afford a $10k/Month Lifestyle in Retirement!
FAQ
What is a good monthly income in retirement?
How much does the average retired person live on per month?
Can you retire on $8000 a month?
What is the average 401k balance for a 65 year old?
|
Age range
|
Average balance
|
Median balance
|
|
35-44
|
$76,354
|
$28,318
|
|
45-54
|
$142,069
|
$48,301
|
|
55-64
|
$207,874
|
$71,168
|
|
65+
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$232,710
|
$70,620
|
What is a good monthly retirement income?
A good monthly retirement income is typically 80% of pre-retirement income; advisors often suggest a range between 70% and a more conservative 90%. Median income for households headed by someone over 65 was $50,290, or $4,191 per month, in 2022 according to the U.S. Census Bureau.
How much money do you need After retirement?
Based on the 80% principle, you can expect to need about $96,000 in annual income after you retire, which is $8,000 per month. The good news is that, if you’re like most people, you’ll get some help from sources other than your savings, such as your Social Security benefits. For most people, Social Security is a significant income source.
What percentage of your pre-retirement income should be 401(k)?
However, the vast majority of them recommend something around 75% to 80% of your pre-retirement income. This can include all sources, such as 401 (k)s, IRAs, Social Security, part-time jobs and more. The key, however, with retirement income planning, is ensuring that you don’t over-withdraw from your retirement accounts.
How much money do you need to generate monthly retirement income?
This means that, of the $8,000 in monthly income needs, $4,000 will come from guaranteed income. The remaining $4,000 will need to come from sources such as investments and savings. In summary, you can estimate the monthly retirement income you need to generate using this formula: