Knowing your current savings is crucial for retirement planning
Your retirement savings include a combination of any 401(k), IRA, and personal savings accounts you have. The amount you've accrued in these funds so far is your starting point, and from there, you'll need to decide how much more to save. Merrill Edge states that a nest egg of $300,000 will yield approximately $12,000 the initial year if you retire at 65. A savings of $1 million will enable you to withdraw $40,000 the first year. Remember, these are general guidelines, and rates can change daily. For a more personalized view of your retirement savings, TDECU offers a retirement nest egg calculator to help you see if you are on track to meet your financial goals.
Life expectancy can impact your contributions
Another factor to consider as you plan for retirement is your probable life expectancy. Ten or 20 additional years of life can make a difference in how much money you'll need to live comfortably after you retire. Curious about your life expectancy? You can use the Social Security Administration's life expectancy calculator. When using this calculator, consider the impact of your lifestyle, including smoking or exercising habits.
What is your expected retirement age
Planning to retire at 55 will take considerably more money than retiring at 60 or 65, partly because you wont have access to Medicare or Social Security yet. Money states that if your goal is to retire at 55, you'll need 18 times your yearly income to replace 75 percent of what you would annually earn. It's often estimated that you'll need 70 percent to 80 percent of your previous income each year in retirement. This estimate is based on the assumption that you won't be putting a percentage into savings for retirement and that you may have a pension to draw on as well as other investments. However depending on the lifestyle you want to live, this may not be enough.
What does your retirement lifestyle look like
Whether you want to primarily stay at home and take care of the grandchildren or travel the world will have a major impact on how much money you'll need. Lifestyle choices can make as much difference as potential life expectancy and retirement age. You'll need to ask yourself several questions regarding what your retirement will look like.
- What kind of hobbies and activities will you likely want to participate in while retired?
- How much money will these activities require?
- Will you want to work part-time to supplement your retirement?
These are just a few of the things you'll need to take into consideration when deciding what type of lifestyle you'll live during retirement.
Make your income & investments work for you
Most estimates for how much you'll need for retirement are based on your current income. A percentage of your income will need to be put in various savings plans in order to meet your retirement goals. You'll also need to calculate how much return you're likely to get from each of the investments you have.
There are several factors to consider when planning for your golden years and speaking with a trusted advisor can make the process easier. TDECU Wealth Advisors (TWA) have the expertise to help you figure out how much you'll need to reach your goals for a comfortable retirement. Contact TWA to start planning.
Sources:
https://www.ssa.gov/oact/TR/2024/lr5a5.html
https://www.merrilledge.com/article/how-much-do-you-really-need-to-save-for-retirement
https://www.time.com/money/3045776/early-retire-55-how-much-need/