At Renew, we know it can be scary to think about how much you’ve saved (or still need to save) for retirement. For years, you’ve heard the advice: save as much as possible now. Otherwise, you won’t be able to retire and… you’ll work the rest of your life. Deciding whether you have enough money to retire can be daunting, right?
In an effort to make the money talk more digestible, we’re going to stay focused on the essentials: savings goals and common income sources in retirement.
The savings figures you should aim for
Savings are at the forefront of the “money in retirement” discussion. This is because they will likely be your main source of income once you stop working. While there is no universally accepted savings goal, understanding the recommendations out there can be helpful as you plan for retirement.
The two general rules of thumb for calculating how much the typical person should have saved for retirement are:
10 to 12 times your current income
$1 million to $1.5 million dollars
For some, those figures may seem unattainable, and for others, these figures may not seem like nearly enough! You should keep in mind that the retirement experience looks different for everyone, so there is no magic number. Let’s look at some hypothetical examples so that you can see these numbers applied.
The general formula for annual income is: savings + social security + other income or assets – taxes / years in retirement. When you’re doing this calculation for yourself on income, there are a lot of factors to consider relative to your specific lifestyle including:
- What was your income tax rate (state and federal) and how did that impact your take home pay? How much will you take out each year? What will your tax rate be on those savings and social security?
- What are your financial obligations, such as health insurance costs? Do you have outstanding loans? Do you own your house or will you be renting?
- How important is it to have extra money to travel or do special activities?
- Will you generate any income in retirement through part time work or other investments? If you’re interested in picking up part-time work to supplement you income in retirement, check out this article for some suggestions.
Whatever your situation, it’s a good idea to take a hard look at your finances before you jump into retirement. Being prepared with a monthly or yearly income will help you make better choices when it comes to purchasing a Medicare plan or deciding where to live.