How much do I need to save for retirement?

Written by Randall Neighbour, RICP®, APMA® Founder of Kingdom Wealth Management

The amount needed for retirement is different for everyone. There’s a number of factors that go into answering this important question, so visiting with a financial advisor is in your best interest. So just how does an advisor come up with a well-thought out answer for you?

If you ever wanted to get inside the head of a financial advisor who helps people plan for retirement, here’s what goes into my thinking process to answer the question for my clients:

Expenses – What do you anticipate you’ll need for basic living expenses in retirement? This would include mortgage and debt repayment, utilities, home and auto repairs, property insurance, healthcare premiums and deductibles, holiday and birthday gifts for your kids and grandkids, etc. You’ll need to make sure you have enough dependable income to cover basic living expenses if you want to live independently throughout retirement.

Inflation – We haven’t endured much inflation in the last decade, but that doesn’t mean it won’t rear its ugly head in the next thirty or forty years. Inflation causes the cost of everyday items like groceries and gasoline rise in cost. You’ll need to strategically do what you can to make sure your investments and income sources keep up with the rising cost of living.

Taxes – You may be earning a lot less in retirement and possibly be in a lower tax bracket. What happens if the lowest tax bracket increases substantially? You’ll need to think about the potential tax increases on the IRA money you withdraw during retirement because it’s currently taxed at ordinary income rates.

Healthcare – According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2020 may need approximately $295,000 saved (after tax) to cover health care expenses in retirement above and beyond what Medicare might cover. Of course, the amount you’ll need will depend on when and where you retire, how healthy you are, and how long you live.¹

Long Term Care – 69% of Americans will need some form of long term care in their home or a facility; it’s typically needed for 1-3 years; and the annual cost of care varies state-to-state, but the average cost for a semi-private room per year is currently $85,775.² A private room or care in your home will be more… a lot more. You’ll need money set aside for this potential need, or an insurance policy, or a combination of both.

These five areas are most of the big costs you’ll potentially experience in retirement that must be planned for while you’re still working. Now let’s talk about income sources in retirement:

Social Security – If you or your spouse has worked long enough to qualify, you’ll receive an inflation-adjusted payment throughout retirement. If you don’t know what your estimated benefit might be, log into ssa.gov and download your statement. The big question is, will it be enough to cover the five expense areas mentioned above? Probably not, so keep reading…

Pension Income – Educators, government workers, and some fortunate corporate employees have a pension coming to them in retirement. It is important to find out if it’s inflation-adjusted though, because many pensions are a static payment.

Investment Income – Many Americans have been salting away money in a 401k or 403b account through their employer plans their entire careers. Others have contributed to Roth IRA’s as well. This is a significant source of retirement income for many Americans.

Annuity Income – An annuity is an insurance product where a person gives an insurance company an amount of money and the insurance company in return offers a stream of income in the future based on how well the account has grown over a number of years. It is often called a “self-funded pension” and it’s used by millions of Americans who want a dependable check each month.

Part-Time Work – More and more retirees are working part-time in retirement. After just a few months of enjoying a hobby full time, many people get bored and go back to work in some capacity. Studies show that working in retirement provides better health and longevity, not to mention stretching one’s retirement savings.³

So I’m going to ask again… how much money do I need to save for retirement?
To learn how much you’ll need for retirement, we need to gather information about you, your plans in retirement, your current and future obligations, and the potential sources of income you may receive when you decide to stop working. We have excellent tools for expense and income projections with inflation factored in, and we can easily create “what if” scenarios. If you’ll give us some information and time to get to know you better, we will help you answer this question. Click here to set up a time to visit with us:

How much do I need to save for retirement?

CONTACT KINGDOM WEALTH MANAGEMENT