How Much Monthly Retirement Income Do I Need

How Can I Save More For Retirement

When it comes to saving for retirement, the first step is picking the best retirement account. If youre already saving in a retirement account, make sure youre contributing enough to get your employers full matching contribution and then put your contributions on autopilot.

These strategies have been proven to help people save more for retirement, but dont stop there. Make a plan to gradually boost the amount you contribute each year, preferably each time you receive a raise. For more, see our guide on how to save for retirement.

How To Retire On $500k

By Justin Pritchard, CFP® in Montrose, CO

Sometimes retirement advice relies on round numbers and rules of thumb. For example, you might hear that you need $2 million to retire. But the amount you need depends on things like your monthly spending and any sources of retirement income.

Most people never reach $1 million in savings. In fact, many of my clients have somewhere between a few hundred thousand to a few million in assets. So, if youre anything like them, it may be helpful to see how it looks to retire on $500k.

Ultimately, anybody approaching retirement faces a choice: Do you work longer so you can continue saving, or can you retire comfortably with less?

Social Security And Medicare Solvency

Social Security and Medicare are in real financial trouble. Policy changes will likely change the future of these programs. Nothing is certain, but if you dive into the numbers, you can see that there are very real concerns about the future of these programs that provide the lions share of retirement income.

While, if you are of retirement age now, your benefits are probably not in peril, future claimants may face reduced benefits.

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Using Investments To Fund Retirement

You may also be able to semi-retire thanks to relatively reliable returns from assets such as property. Its a great option if youre not eligible for or dont want to claim your pension yet or want to give up work completely without dipping into your retirement fund too much.

Not sure what the right option is for you? Find an accountant or financial advisor you can trust by using Unbiaseds handy search tool.

Want To Boost Your Score Here’s How

Here are some ways to boost your retirement readiness whether youre behind on your goals or are on track but maybe want to retire a little earlier.

“My score needs attention.”

An individual retirement account is one of the most popular ways to save for retirement given its large tax advantages. You can put in up to $6,000 a year. And if you’re 50 or older, you can contribute an additional $1,000 a year. » Learn more about IRAs

“On my way, but I could close the gap.”

The annual limit for 401 contributions is $20,500 in 2022 . Its wise to at least contribute up to the point where youre getting all of the matching dollars your employer might offer. » See about increasing your 401 contributions

“I’m on track, but I want to do more.”

A good advisor can help you understand complex issues, diagnose potential problems and take steps to plan for the future. And theyre not as expensive as you might think. » Learn how to choose a financial advisor

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Average Retirement Income By State

Data released by the U.S. Census Bureau shows the average retirement income in every state. Weve listed the averages for each state based on region. To get a better look at retirement income in the U.S., we also broke down which states have the highest average retirement income and the lowest.

Northeast:

Important Financial Trends For Retirement Income 2022 And Beyond

Average retirement income in 2022 is somewhat driven by choices retirees made long ago where did they work, how much did they save, did they buy a home, and more. However, retirement income is also driven by decisions retirees make today and trends driving the overall economy.

Here are some financial trends that may impact your retirement income:

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A Helpful Way To Set Your Retirement Target

• Frequently Asked Questions

Several financial rules and guidelines can be applied to generating retirement income. A simple and popular investment strategy for those saving for retirement is the $1,000-per-month rule of thumb. How much do you need to invest to make $1,000 a month?

The $1,000-a-month rule helps you gauge how much you must save in order to withdraw a certain amount monthly in retirement. Find out how it works, what pitfalls to watch out for, and how this rule of thumb compares with other retirement guidance.

Percentage Of Your Salary

Some experts recommend that you save at least 70 80% of your preretirement income. This means if you earned $100,000 year before retiring, you should plan on spending $70,000 $80,000 a year in retirement.

A benefit of this strategy is that its easy to calculate. And you can use the result to estimate how much you need to save for retirement. For instance, if your current income is $50,000 and you expect your retirement to last at least 30 years, youll need roughly $1.5 million for your nest egg .

However, a major downside of this guideline is that it doesnt consider inflation. You wont know how much youll need to retire unless you look at your current salary and adjust it for inflation. You can use an inflation calculator , which can be the simplest option, or you can use the rule of 72.

If you take 72 and divide it by the average inflation rate, youll get the number of years it takes to double your cost of living. For example, using a 3% inflation rate, itll take 24 years for it to double. While this is a good rule of thumb, the more accurate way is to use an inflation calculator.

Another downside is that its hard to determine how much money youll need because its hard to predict how long your retirement will last. That said, you can still use it as a guideline to start setting aside a percentage of your income into retirement and savings accounts.

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Using This Retirement Calculator

• First, enter your current age, income, savings balance and how much you save toward retirement each month. Thats enough to get a snapshot of where you stand.

• Want to customize your results? Expanding the Optional settings lets you add what you expect to receive from Social Security , adjust your spending level in retirement, change your expected retirement age and more.

• Hover over or tap on the color bars in your results panel to get further insight into where you stand.

• You can adjust your inputs to see how various actions, like saving more or planning to retire later, might affect your retirement picture.

How Much Savings Will You Need To Retire

Now let’s determine how much savings you’ll need to retire. After you’ve figured out how much income you’ll need to generate from your savings, the next step is to calculate how large your retirement nest egg needs to be for you to produce this much income in perpetuity.

A retirement calculator is one option, or you can use the “4% rule.” The 4% rule says that in your first year of retirement, you can withdraw 4% of your retirement savings.

So, if you have $1 million saved, you would take $40,000 out during your first year of retirement either in a lump sum or as a series of payments. In subsequent years of retirement, you would adjust this amount upward to keep up with cost-of-living increases.

The idea is that, if you follow this rule, you shouldn’t have to worry about running out of money in retirement. Specifically, the 4% rule is designed to make sure your money has a high probability of lasting for a minimum of 30 years.

To calculate a retirement savings target based on the 4% rule, you use the following formula:

We saw in the previous section that our couple would need $4,000 per month from their savings. So, in this case, they should aim for $1.2 million in retirement savings accounts, such as a 401 plan or individual retirement account , to provide $48,000 per year in sustainable retirement income.

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States With The Highest Retirement Income

1. Hawaii

The average annual retirement income in Hawaii is $119,004 to live comfortably. Hawaiis average retirement age is on the older side at 66 years however, it has the highest life expectancy of any U.S. state at 81.50 years. To live comfortably in this period, one would need to save $1.84 million before retiring.

2. District of Columbia

The average retirement income in D.C. is $100,419. The District has the oldest average retirement age in 67 years and a life expectancy of 77.10 years. With yearly expenses coming out to about $83,683, a person would need to save about $1.01 million to retire comfortably in the District of Columbia.

3. California

California has the third-highest average income required for a comfortable retirement. Because Californias average retirement age of 64 years is lower than D.C. and its average life expectancy is higher at 80.90 years, the total amount of savings required to live comfortably is $1.46 million, higher than D.C.s. However, because average yearly expenses are lower, the average annual income to live comfortably is lower at $86,171 per year.

4. New York

The average income required to retire comfortably in New York is $83,817 per year. Retirement in New York is expected to last just over 16 years, with an average retirement age of 64 years and an average life expectancy of 80.80 years. For these 16 years of retirement in New York, the average retiree needs to save $1.41 million, the second-highest among states.

5. Massachusetts

Factor No : How Long Will You Live

Since no one really knows the answer to that question, it’s best to look at averages. At 65, the average man can expect to live another 18 years, to 83, according to Social Security. The average 65-year-old woman can expect another 20.5 years, to 85 1/2.

“Most people err on the shorter side of the estimate, says Schatsky. That can be a big misjudgment: If you plan your retirement based on living to 80, your 81st birthday might not be as festive as you’d like.

It makes sense to think about how long your parents and grandparents lived when you try to estimate how long you’ll need your money. If you’re married and both sets of parents lived into their late 90s, the only way you’re not getting there is if don’t look both ways when you cross the street, Bass, the Texas financial planner, says. Unless you know you’re in frail health, however, it’s probably best to plan to live 25 years after retirement to age 90.

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Big Cola Boost For 2022

The average monthly Social Security income got a 5.9% boost for 2022 due to rising inflation. This Cost of Living Adjustment raised the average monthly Social Security payment to $1,657.

Social Security was never intended to be a primary source of income. It was only ever intended to supplement retirement income. However, maximizing your payout can really add up over your lifetime!

Where Does Retirement Income Come From

Many people have various sources of retirement income. These can include investment accounts to protect against inflation, benefits from government programs or continuing paychecks. Generally speaking, its best to have several of these income sources to ensure you have enough to live comfortably.

When considering where your retirement income will come from, one important aspect to think about is the diversification of your portfolio. This can help to alleviate risks in the market and protect your future or current income.

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Spending From Your Assets

To close the gap between the income you need and the income you have, youll need to spend from your assets.

Live Off the Earnings?

Some people imagine retirement as a time when they live off the income from their savings. But for most people, including the clients I typically work with, thats not a reality. Especially if you plan to retire with $500k in assets, you will probably need to spend down your assets. Thats because interest rates are relatively low, and most retirees prefer to avoid taking major risks with their life savings.

To save enough to avoid spending from your principal, you might need to continue working longerwhich isnt always an option. The other option is to save so much of your income that its hard to enjoy yourself and make memories during your working years. Thats probably not very appealing, either.

A Safe Withdrawal Rate?

Its critical to make your money last. You dont want to run out of savings before you die, as youd need to make unwelcome sacrifices at a time in life when youre vulnerable. So, how much is safe to spend? One rule of thumb suggests that you can spend 4% of your savings per year. The success of that strategy depends on several factors , and the topic is constantly debated. Still, the 4% rule can be helpful as a starting point for learning where you stand.

To calculate your 4% amount for Year 1, multiply your retirement savings by 0.04 or use the tool below.

Calculate Your Earnings And More

Use this retirement income calculator to determine how much monthly income retirement savings may provide during retirement. The annual savings, expected rate of return and current age all have an impact on the monthly retirement income. View the full report to see a year-by-year breakdown of retirement savings.

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Multiples Of Your Annual Income

Fidelity recommends saving a certain percentage of your salary based on your age and income. It recommends this strategy because your age has a huge impact on the amount you need to save for retirement.

You start off at a smaller percentage when youre younger so by the time you reach retirement age, compound interest will have done its work, helping you achieve a comfortable retirement.

The brokerage suggests you start by saving at least 15% of your gross salary when youre 25 and investing heavily in more aggressive assets like stocks. By the time youre 30, you should have saved at least 50% of your salary. Of course, you could be more aggressive with your 401 savings goals.

Retirement Goals By Age

Heres a table that shows an estimate of how much of your annual income you should budget for retirement by age.

How Much Income Do Retirees Have

As a general rule, youll need about 70-80% of your pre-retirement income to maintain a similar standard of living in retirement and cover your expenses. This amount will generally cover the cost of healthcare, housing and other necessary expenses while also allowing a little freedom as well. Your income in retirement will come from three sources.

1. Social Security Benefits

According to the Social Security Administration , more than 85% of people 65 and older receive Social Security benefits. Of that, 38% depend on Social Security for the majority of their retirement income. However, Social Security was never meant to be a primary source of retirement income it is supposed to be supplemental. The average retirement income from Social Security is as follows:

Use the SSAs Social Security Retirement Estimator to project how much of your retirement income will come from Social Security.

To be eligible for Social Security Benefits, you need to have worked and paid into the system for a minimum of 40 quarters or 10 years.

How to Calculate Your Social Security Income

Your Social Security income is calculated using 2 factors:

For 2020, the maximum monthly benefit is:

• $3,790 if you file at age 70
• $3,011 if you file at full retirement age
• $2,265 if you file at age 62

2. Retirement Savings

401

IRA

3. Pension Plans

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How Much You Should Set Aside

The amount of retirement income you will need is not a set number. It depends on where you live and how much you make, as well as the cost of living in that state. You can use a retirement calculator to calculate how much savings you will need to retire.

Additionally, you can use the 4% rule. With this method, you can withdraw 4% of your retirement savings in the first year. In subsequent years, your withdrawal will fluctuate slightly based on your cost of living and inflation. The 4% rule is for you to make sure your money has a high chance of lasting a minimum of 30 years.

To calculate your average retirement income based on the 4% method, you can follow the following formula: target retirement savings amount = annual income amount X 25.

For example, if you need an annual income of $50,000, then your target retirement savings would amount to $1.25 million.