6 Tips On How To Calculate How Much Money You Need To Retire

By Ashley Henshaw. May 7th 2016

Retirement may seem like a long way away now, but with people living longer, fuller lives at an older age it’s important to start saving early. Even if you know you want to save for retirement, how do you know how much money you need in order to make it possible? This simple guide gives you the information you need to figure out how much money you need to retire.

Set A Goal For Retirement

Before you can figure out how much money you’ll need to retire, you need to decide when you’d like to retire in the first place. Say you want to retire at 65 – you’ll need to have that number in mind since that is the point at which you’ll stop earning an annual income. The sooner you plan to retire, the more you’ll have to save (and vice versa). Keep in mind that if you didn’t start saving for retirement very early on in your career, you may not be able to retire as early as you’d hoped.

Plan For A Long Life

People are living longer these days; in fact, half of today’s 65-year-olds will live past the age of 82 if they are male and 84 if they are female. In addition, medical treatments and health advice has those older individuals remaining active well into their senior years. It’s important to plan for a long life to ensure that you’ll have sufficient funds to live off of as you age. If you plan to retire at 65, for example, you should assume that you’ll live to be at least 85 based on the figures provided above.

Think About Medical Expenses

Many people who retire are eligible for Medicare right away or within a few years (you become eligible at age 65). However, Medicare won’t necessarily cover all of your medical costs so it’s important to consider that fact when planning for retirement. According to the Employee Benefits Research Institute (ERBI), a 65-year-old couple without employer-provided health benefits in the year 2019 will need about $450,000 for a 50 percent chance of paying for medical expenses that Medicare won’t cover. Medical costs can quickly escalate as you age, and medical treatments, at-home care or nursing home costs can quickly use up your retirement savings. If you’re prone to health problems, you may want to set aside even more than the recommended amounts for health care after retirement.

Account For Inflation

If you’re starting to save for retirement in your 20s or 30s, then you’re already on the right track. But don’t forget that in 30 or 40 years your basic expenses may cost a lot more. Maybe you figure you could live off of $30,000 a year after retirement based on your expenses today -- however, if your retirement’s still a few decades away, that $30,000 might not provide as much as you hoped once you’re actually retired. Be sure to factor this in when deciding how much you need to save for retirement.

Factor In Social Security

According to the Wall Street Journal, the average retired single worker will receive about $14,000 a year in Social Security, while retired couples will get about $23,000. You’ll want to factor this into your retirement savings to give yourself a more accurate picture of what you’ll be living off of after you retire. However, it’s important to remember that Social Security isn’t foolproof. According to MSN Money, the Social Security Trust Fund will be exhausted in 2036 at the rate we’re going, and the U.S. government has increased the age of eligibility in the past. Calculators to help figure out Social Security benefits are available at SocialSecurity.gov. (To learn when you should start collecting your Social Security benefits, see What Is The Best Age To Start Collecting Social Security Benefits?)

Use An Online Calculator

The best part about figuring out how much you’ll need for retirement is that you can use the information from the steps above to get an instant estimate online. A number of reliable websites provide retirement calculators where you can plug in your annual income required, the number of years until you retire, the number of years you want to provide for after retirement, etc. and get a quick estimate of what you’ll need. Try the calculators on Bankrate.com or Money.CNN.com to see how much money you need to save before retirement. Keep in mind, however, that this doesn’t factor in special circumstances like high medical costs or plans to travel extensively.

The sooner you start planning for retirement, the better off you’ll be when the time comes. Fortunately, there are lots of great tools and resources available to help you along the way. Don’t hesitate to consult with investment and savings professionals for the best results when it comes to saving for your retirement.


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