With every passing day, your concern about not having enough savings in your retirement will be increasing. You must be worried about not having enough money saved to live a standard life. Well, you are not alone in this.
According to the published Federal Reserve Report on Economic Well-Being of US Households, only 36% of working adults think that their retirement savings are right on track. It shows that 64% of non-retired adults are concerned about lagging from the rest.
The only possible way to get out of this worry is to start acting today and save enough money for your retired life. So, is there any estimate of how much retirement savings you should collect to handle your expenses gracefully?
No rule predicts the exact amount that you need, but you can get an estimate of how much you must start saving right now.
To find out how much money do you need to retire comfortably and what you should save, stay tuned
Determining your retirement goals
Rule of Thumb
Generally, people use two rules of thumb to determine their retirement savings goals:
- Based on Income
This rule suggests that you should save enough money to rely on 75% to 85% of your retirement income.
It means that if you and your spouse are jointly earning $100,000, you should make a plan to save money so that you have $75,000 to $85,000 each year after retirement.
This strategy is general, and you can adjust it as per your expenses. So, if you plan to travel often, you must aim for 90% to 100% of your pre-retirement income.
- Based on Expenses
After estimating your retirement income needs, you have to calculate the amount you will be saving to meet your goal.
The popular way to do this is to follow the 4% rule. You can also use online retirement savings calculators.
The 4% rule suggests that your current expenses will be your guide to retirement planning. If you confine yourself to withdraw only 4% of retirement savings in the first year, you will have enough money afterward.
So, if you have saved $1 million, you can take out only $40,000 during the first year. For next year, you can adjust this amount as per your living expenses. The 4% rule is employed to ensure that saved money can last for at least 30 years after retirement.
Example: To calculate how much retirement savings you need to live comfortably, use the 4% rule and multiply the desired annual income by 25. So, if your retirement income is $50,000 per year, multiply 50,000 by 25 to get total savings (50,000 x 25), i-e $1.25 million.
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Additional incomes in your retirement
There are chances that you will get some additional sources of income other than your savings.
- Social security replaces about 40% of pre-retirement income. The percentage can be lower for a high-income retiree. However, in most cases, it is a reliable and significant income source. To get an idea of your social security income, you can use a social security administration calculator.
- Pensions from the current or former jobs are also a significant income source. So don’t forget to consider them. The same goes for your rental property that can be a constant source of income.
Example: Let’s consider that you plan to spend $50,000 per year in retirement. You need to save $1,250,000 before you retire.
However, with additional sources of income, you can bring some money as income. If you get $15,000 per year from additional sources, you need to spend only $35000 of your savings in a year, and your retirement savings goal would drop from $1,250,000 to $875,000.