How much money should you be saving for your retirement? Here are four areas to think about as you plan for your future.
It’s a question everyone asks: How much should I be saving for retirement?
$100,000? $1 million? $15 million? It’s almost impossible when you think about it that way. When you turn the table and think about what sort of income you’d like to be receive during retirement, it can seem a lot more manageable and understandable.
If you wanted to make a $50k annual income during retirement, for example, experts say you should be saving enough so that you can receive 60% of your annual income during your working years as your monthly “retirement income.” If you can, you may want to consider saving even more.
Here are 4 things to consider when you’re trying to figure out how much to save for your retirement:
The IRS helps calculate ideal retirement savings by publishing some life-expectancy numbers in Appendix C of Publication 590. Look up your age and to see an estimate of the years you have left. If you divide your life expectancy by the amount you have saved, you’ll see your “yearly income” in retirement, or the amount you can safely draw from your retirement savings per year.
For example, if you retired at age 62, your life expectancy is 23.5 years, and if you have $1 million saved for retirement, your “yearly income” will be $42,553 (Wall Street Journal).
2. Your loved ones
You’ll want to save enough so that you can receive a monthly retirement “income” of at least 60% of your monthly income during working years. This should cover your basic needs, but if you want to leave an inheritance, you may want to consider saving 70 to 80%.
3. Life-style and health history
Make sure you consider your family tree. If you know both of your parents required lots of medical attention as they aged, you may assume you will have some medical bills to pay yourself. Create room in your retirement budget for costs like these that don’t fall in the “basic expenses” bucket.
4. Consider market possibilities during your retirement
You never know what the market will do when you enter retirement. Make sure to give yourself some cushion funds in case it tanks right as you say good-bye to the working world:
- Consider saving 18-24 months’ worth of living expenses in a money market fund. That way if the market is heading down as you enter retirement, you can have an extra cushion to cover your basic needs.
- Consider guaranteed products instead of variable investments. If you’re waiting for the market to recover, you can pull from income investments, like annuities.
Written by Kayla Johnson
This blog post is from the Author's perspective and doesn't speak for brightpeak financial. Contact brightpeak if you want to know more about brightpeak products, and keep in mind that they are not available in all states and there are some limitations (some exclusions and restrictions may apply).