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How Much Is Enough for Retirement?

Category: Financial and taxes in retirement

February 8, 2021 — If there was ever a perplexing question it is this one – how much is enough for a comfortable retirement? The short answer is – more than you probably think! The long answer starts with the fact that most people haven’t thought enough about their own situation to come up with a reasonable answer. Once you understand how your expenses match up with your income, then you can start to know how much you need for retirement.

People tend to underestimate several key components of the expense side – like how long they will live and what their medical costs will be, and forget about unexpected expenses like replacement roofs, worn out cars and AC systems, and assistance to family members. They also tend to have a vague idea about their income sources, and overestimate how long their savings will last. Much also depends on your lifestyle – you can live within almost any budget if you match expenses to your income, although it might be hard and require lifestyle changes.

So the first thing to do when trying to calculate how much you need for retirement is get a realistic handle on your budget – matching income to expenses. Income is fairly easy for most people to calculate, while expenses are harder. The expense side of the equation can vary widely, depending on your lifestyle, which fortunately you can modify.

Step #1: Figure Out Your budget (this applies to everyone!).

Until you have a good idea of what your retirement expenses will be and how they match up to your income, you can’t really start planning. It is a critical step to head off what could be a disaster – running out of money way before you or your significant other check out of this world. This budget worksheet in csv format contains most of the items you need to consider when developing a budget, and you can customize it to fit your needs.

Income

Retirement income can come from many sources. Unfortunately for many people, Social Security is the main source. A good plan means you know what exactly income sources you will have, and how much they will bring in.

Social Security income is the main source for most people. Which is too bad, because the average Social Security benefit in 2021 is only $1543 for a retired worker and $801 for their spouse (some receive a lot more, others less). Most people would find it very tough to live on that alone. It is easy to estimate how much you are going to get. Just go to the government’s “Social Security Estimator” to instantly get an estimate of your monthly payment, depending on when you start collecting.

If you are fortunate to have a pension income your employer should be able to advise on how much you will receive.

Your 401k,  retirement funds, and other investments and savings will generate income for you, depending on how much you have saved and how well you invested them. You can also spend them down as you age. An old rule of thumb was that if you start taking out 4% a year from these funds at age 65 you probably won’t exhaust your nest egg in your expected lifetime (in the current low interest world some would argue 4% is a little too high). The average person 65 or older has about $192,000 in retirement savings. The median savings figure is only $58,000, which means a minority of retirement age people have very large savings balances, but most have a lot less. While that average balance might seem like a lot, at a 4% return that translates to just under $7680/year in sustainable income, while the median balance only produces $2320.

A budget tool we like is the Vanguard Nest Egg Calculator , which automatically does a number of important calculations for you (other companies have similar ones). You tell it how much you have saved and how much you need to take out, it will predict how long the money will last.

Employment is the biggest income variable you have some control over. A part-time job or a side business like an Airbnb property could make the difference between poverty and a comfortable retirement.

Expenses.

The second step in establishing your budget is to identify all of your expected expenses in retirement. They probably won’t be quite as high as they are now in your working days, but they won’t be a whole lot less either. While you’ll probably save on work related expenses, travel and health care costs could more than make up for those. You might have to support a parent, child, or grandchild. In your later years you will probably have to pay for a home health aide or assisted living – if you are lucky enough to live that long.

Compare expenses to income

This is the crucial moment. If your current expenses are less than your income, you have enough to retire! But if you don’t, or it is close, now is the time to figure out strategies to fill that gap – and to take action quickly. Fortunately, there are a lot of things you can do besides wringing your hands and complaining. You can change your lifestyle, where you live, what you do with your life. Get a part time job, share a home with one of your children or a friend.

Suggestions from Members on managing a shortfall

Since this is a topic we have explored many times on this site, we are fortunate to have many insightful and practical suggestions from our members on the question of how much is enough for retirement – and what to do if you come up short. Here is a selection of some of the best of those:


When estimating what we think we’ll need husband and I looked at what we thought would be 3 phases of retirement – assuming one or both of us will survive into our 90s (and that there will an average inflation rate of about 2 – 4 %). Early retirement (up to about 78 or so), mid retirement (perhaps up to 88 +/-) and late retirement. And for each phase we considered what we think we’ll be spending and what the spending pitfalls might be and how to best try to avoid those pitfalls like the temptation to way overspend on all sorts of things. We assume that as we move to mid retirement we’ll spend more time at home and activity costs will decline but we’ll have to spend more of hiring people to do house/yard work, etc. and in late retirement we do expect the costs will increase to cover some sort of long term care. –Jean


My strong suggestion is to determine expenses in retirement……and then add about 10-15% to that number to account for those totally unanticipated expenses. They are unanticipated, but we all know that they will occur.
— John S


(From RichPB – who loves spreadsheets!) – The spreadsheet development was mostly compiling and documenting income, expenses and “educated guesses” about future changes — things most people should consider when making retirement decisions. The spreadsheet itself was a matter of recording info and guesses in a way that could be easily changed (inflation, medical and insurance guesses, etc.) and extending the projections out to age 100 (which showed that our resources would not last that long :<). Within a few years, I had added a sheet that accepted input of most of these changes/guesses (such as base inflation, investment growth rate and about 25 other items). The sheet was more complex at the beginning as it allowed draw down and adjustment from various sources (savings, IRA, investments) and income (primarily SocSec), but it became simpler as resources depleted. It also provided for estimating taxes which proved to be way more difficult than expected — especially when we reached RMD. My practice of being conservative (inflation at 3% — a changeable item and trying to minimally over-estimate expenses helped).

With budgeting (we save receipts for everything, my wife tracks the expenses), I manage the spreadsheet and compare budget to expenses quarterly. Every December, I update the sheets based on new situations including investments. Over the years, the original sheet became additional sheets. One considers my possible premature death and where that would leave my wife. Another considers the sale of our home and renting or downsizing. The latter has gotten a lot of use in recent years, but we have so far ended up deciding that there is no place like home. — RichPB

For further reading:

Comments? How much do you think you need to retire? Will you have enough? If not, what will you do to cope? Please share your thoughts in the Comments section.

Posted by Admin on February 8th, 2021

21 Comments »

  1. Hmm, my words come back to me :<) We have always researched and managed our own financial concerns though early on we sought the advice of a few fiduciary managers

    As the article says, how much you need for retirement starts with what you have in income and savings but also depends heavily on your expenses — managing and planning for your expenses is one of the major activities that can help you succeed in retirement. Our efforts have resulted in doubling our position over 18 years.

    We've have now been tracking every expense for about 20 years to help with our planning — since about two years before retirement in 2003. By tracking, I mean keeping and recording all receipts. That's mainly establishing a habit of asking for receipts and keeping them. And don't get behind in recording…

    At this point we manage 25 expense categories many of which are sub-divided into a total of 70 unique items. Things have been added and removed over the years, but the total number of items stays about the same.

    The biggest surprises we encountered that resulted in significant adjustments in planning: 1) early on, we learned that our cost for health insurance went up about 15-20% the year following retirement as a result of being changed to a different insurance "pool" (old retirement vs young working — my definitions); and 2) the large impact on our taxes which occurs with taking the RMD after 70 1/2. (That required a 25% tax adjustment this year.)

    RMD can be difficult to project because it depends on your investment total at the previous year end. The required percent of your investments for RMD decreases every year, but if your investments increase (generally considered a good thing) even that lower percentage may result is a higher taxable dollar amount. Your RMD is added to your taxable income.

    by RichPB — February 9, 2021

  2. Sorry for dominating this thread, but I just read in another TR thread a person who said that $1M retirement savings may seem like an adequate cushion but it is not! They said $5M is more likely. Talk about difference in perspective!

    We started with “only” $400K. (I say “only” because many can’t retire with even that much. Yes, we give some time to managing our finances, but we have not been deprived of having a good retirement. We have traveled some every year (mostly around the US), have given time to community, and have made significant improvements to our home (many friends comment that we live in a “vacation home”). And we have lived in reasonable comfort. The thought of requiring $1M to $5M is, to me, next to preposterous.

    by RichPB — February 10, 2021

  3. For those out there that don’t comprehend finance and money (I have several friends like that) I want to say “Don’t be afraid!” The first time we thought about what our expenses would be in retirement, I panicked! How on earth could I possibly know that?? Then, one afternoon I sat down with a piece of paper and began a list.

    Calmly, I thought I would start by writing down what we spend NOW: mortgage, insurance, electric, trash removal, etc….. Then I though – well, we have to live somewhere when we retired so we will pay for similar things. Thus we made another list – its pretty much the same things. My major concern was that our “income” (from Soc.Sec., pension, IRA, etc) should be a little more than we expect to pay out. Thus, we created a couple of annuities to be able to count on some lifetime income, leaving some other accounts intact for special items like trips or a new car, possibly a buy-in at a Continuing Care Retirement Community (CCRC).

    When we moved from TN to Maine – some expenses went up and some went down (the auto insurance is now HALF of what we paid in TN). With the pandemic, we’re not out as much and expenses have been very manageable. We’ve even been able to donate to the local Food Pantry. My lists are still changing but I try to keep a general list of what we HAVE TO spend and our projected income (I will begin Soc. Sec. this year and DH will lose his insurance income) So far, so good. Just try to be aware and always look ahead a little bit.

    by HEF — February 10, 2021

  4. RICH – thanks for that second “tidbit!” We too began with between $500K and $600K and are doing just fine! We ended up having a mortgage (and refinanced to lower our monthly payment) instead of paying cash for this house. Over the last few years we have managed to live off our income stream and our savings has grown so….it is totally doable if you can plan ahead and live within your means!! I always think – “Do we REALLY NEED this?” before we buy. Sometimes there is enough in the checkbook to splurge 😀

    by HEF — February 10, 2021

  5. $5 million??? Maybe if you live retire in San Francisco and have a spendthrift lifestyle. We have a bit over $1M in financial assets plus a paid-off house. We both started taking our Social Security this month (I’m 66.5 and she’s 63.5) and our cash flow from that will be plenty to cover our living expenses plus there will be enough left over for extras. In fact, our post-tax cash flow is larger than it was when my wife retired (I’ve been retired for 6 years). Our lifestyle is comfortable but not excessive. I agree that when you are estimating expenses that you should tack on another 10-15%.

    One thing people forget is that it is likely you will be paying far less in taxes when you are retired unless you have to take large RMDs/withdrawals from your retirement accounts (traditional IRAs/401Ks/etc). No matter what, you will not be paying FICA on any income (7.65% right there) and many states do not tax social security income. Until we take RMDs we will not be paying any Federal or state income taxes even if I take a small amount from my IRA to supplement our social security income.

    by JD — February 10, 2021

  6. I will say that that if your health goes in the wrong direction then you will pay at least $3000 a month for assisted living and any assets will be quickly depleted. We never thought my Mom would need such a place and overnight after an afib needed to go into an assisted living. Thank goodness she has a nursing home policy but it will be depleted in 2 years and 2 years later she will have gone through her money and then will have limited choices.

    by Debra — February 10, 2021

  7. JD — good point about the taxes but it can vary. While we have been drawing a little from investments for several years, the RMD requirement is considerably higher, do it pushed our taxes up. As we both note for different reasons, RMD can be awkward to plan for. In our case we expect it to change next year.

    by RichPB — February 11, 2021

  8. Hi, I’m the person who mentioned the $1million for retirement not necessarily providing a carefree retirement, whereas $5million could. This was an offhand comment in a thread on another topic, and I wasn’t suggesting the goal should be $5mil (although it sure would be a nice nest egg to have!). I’m far from a financial expert or even a qualified amateur, and I’m not aiming to start a discussion on finances. However, I just want to cite a few statistics that led me to downplay a million as the ticket to a comfortable retirement.

    Schwab does annual surveys on the perception of money. Participants in the 2019 Modern Wealth Survey said it would take a net worth of $2.27 million for most to consider themselves wealthy.

    On average, these 401(k) participants believe they need to save $1.9 million for retirement, an increase of 12% from the $1.7 million reported in the 2018 survey.

    The average differs slightly by generation. Millennials and Gen X believe they will need $2 million and Boomers say they will need $1.6 million.

    TopRetirements itself has an article which says this: “If someone had asked us in 1970 if we would feel comfortable about retiring some day with savings of $1 million – we would have said – YES! But even for the 1 in 12 American families who have that much saved outside of their home equity, a million smackeroos is really not so much to live on in retirement anymore. ” The title of this article is “Not So Much – A Million Dollars for Retirement” and it ran in this newsletter on June 18, 2013. Almost 8 years ago. If I could have bolded the date, I would have.

    So, I find it encouraging to hear from those who are retiring now on way less, and living well and happily. Perhaps this is the reality check we need to all the recurring articles that say we’re not, as a nation, saving enough for our years in retirement.

    by Barbara — February 11, 2021

  9. Most of the comments I have read here compare forced expenses, like taxes, against retirement nest eggs and identify some magic number of assets as able to fund your retirement lifestyle; but I have read few description of anticipated lifestyles — beyond “comfortable.” It is as if many of us anticipate having the same lifestyle, like we all live in Soviet Russia or something. But some of us will want to play golf four days a week at a private club while others will be content with one round at the local muni; some will want to spend two weeks every year in a Paris apartment while others will “splurge” on french fries at McDonalds; your pot roast may be someone else’s filet mignon, or vice versa. In short, yes, $1 million will be enough to fund one type of lifestyle whereas $5 million will not be enough to fund another. Nothing wrong with either — except the assumptions of what it will take to fund them.

    by Larry — February 12, 2021

  10. Barbara, thanks for correcting the impression — that’s very relevant. I read another “how much” article yesterday that suggested $680K today would be adequate — comparable to the $400K of 18 years ago.

    Again, there are many dependencies as Larry said (and thanks to him for more good commentary). When we started, we hoped to budget $5K yearly for travel (recognizing that costs like food would be higher but we’re needed with or without travel). With decent market returns and good financial control, that has increased over the years to 6 then 8 and now $9K (partly due to enforced pandemic restrictions — 2020 travel was negligible). Notice that the travel budget increases, but stays relatively similar.

    The future is still in front of us.

    by RichPB — February 12, 2021

  11. I’ve come to realize that I don’t fit any of the popular “molds” when it comes to how much is needed for retirement, primarily due to the fact that I’m retired military — none of the scenarios take this into account.
    Combining my DoD pension ($21K/year) and SS (another $20K before Medicare and taxes), plus a tiny $250/month defined benefit from a previous job, is sufficient enough, especially when considering a quite small debt load. My 401K and annuities (about $120K) will remain remain untouched until RMD kicks in. I brew my own coffee, don’t buy a new car every two or three years, do not travel extensively, and refuse to pay more for a phone than a computer (I paid $300 for the rather powerful refurbished desktop I’m using at this moment).
    Sure, a household net worth of about $300K falls way short of the $1-$5 million recommendations I keep reading about, but short of a surprise 7 figure medical bill (which only the 1% can absorb, anyway), or some unanticipated egregious government malfeasance, I’m OK.

    by George Corrigan — February 12, 2021

  12. I’m confused on what is considered net worth as far as how much it takes to retire. I thought net worth was everything you own (home/land/savings/pensions etc.) minus everything you owed. From reading various threads here, some imply it is only actual money, some said not your home. I feel I live very comfy, have no outstanding bills, own my home. I use a spread sheet I update each Jan. as this is when I get cost of living increases, I break down each living expense such as property taxes, cable, electricity etc. all expenses I have little control of. I have a couple savings accts. to which I manage to save little over $12K a year & annuity accts. that so far have not been touched. I have good health insurance that is part of my retirement pension, & knock on wood am healthy. Up until last year took vacations, cruises etc. I figured with the stay at home, time I can travel again can go around the world or to New Zealand Australia! I have no where near the millions implied to live well, so I guess question is how are these numbers arrived at. Stay safe & well. The best is still coming.

    by VTRetiree — February 13, 2021

  13. I have used several calculators from Fidelity, Vanguard, Personal Capital, Avoya, Smart Asset, etc. and our retirement requirements always range between $5.8 million – $6.3 million. My wife and I are both 48 and have $3.3 million saved with zero debt so we are well on our way to the target. Our calculations are so high as we assume the worst (e.g. zero social security received / 5% inflation rate instead of 3% / both living to age 95 instead of the SSA ages of 87 and 84) so that even if we don’t reach the target we will be secure. Our plan is to retire in 6 years and travel the world for at least 10-15 years or whenever health or money becomes an issue. Since we don’t have children we will be leaving any leftover assets to charity as our nieces and nephews are overindulged woke cancel culture adhering snowflakes.

    by Danno — February 13, 2021

  14. These posts leave me shaking my head. For some of us, life changed on a dime and years of saving and sacrifice went down the drain. I am one of the many women who were replaced with a younger model. I worked to put my former husband through law school and he hid our assets. I was left scrambling to make ends meet. It happens more than you think! Starting over as a senior citizen is not easy, but can be done . I will bet there are other readers who have a similar story. I hope that women in my daughter’s age group never sacrifice for their families like so many women in my generation did. Life goes on, and for happiness can be found without 5.8 million dollars!

    by Maimi — February 13, 2021

  15. Finances are inevitably a factor in retirement and aging. Nevertheless, there’s no one-size-fits-all solution. A lot depends on what we need and want that simply makes us happy and relatively satisfied. I recently read a book on aging that was very meaningful and didn’t focus on money – “The Gift of Years: Growing Older Gracefully.” It’s by Joan Chittister, a successful and well-respected author of many books about living a fulfilling life. School Library Journal said of the book, “We can all draw strength from Chittister’s essays on regret, nostalgia, and forgiveness. She reminds readers of all generations that aging doesn’t have to be a depressing series of losses.” I recommend it. Available n many libraries.

    by Clyde — February 13, 2021

  16. VT Retiree – great question about net worth. You are correct, net worth is your assets minus your liabilities (debt). So net worth would include your home as as asset. However for retirement purposes, unless you have a reverse mortgage the value of your home doesnt give you cash to live on. So in calculating your potential retirement income it is better to to calculate your net worth without including your home value.

    by Rick — February 13, 2021

  17. Rick is spot on. For most of our 18 year retirement, our paid for home has been at least half of our net worth. We basically think of it as a non-disposible asset. If we run out of money (say around 90), selling our house might offer us 5 or 6 more years financial resources assuming inflation of costs and a not so much increase (if any) in home value. If we sell fairly soon (in years), the profit adds to our portfolio, but then we must add new costs for moving, renting or buying a new place and other factors. It’s one of the most difficult decisions of retirement and aging. Spreadsheets help us understand the relative financial differences.

    by RichPB — February 14, 2021

  18. I was sort of “pushed” into an earlier-than-planned retirement due to COVID-19 and am now retired since Jan.1st. I will turn 65 in March and do not plan to file for Social security until beginning of 2022. My wife is still working this year and plans to retire in Feb.2022 when she turns 65. Until then we can make it on her salary and our savings, but the planning for the future snuck up on us real fast.

    I am starting a spreadsheet to do exactly what RichPB is doing or has been doing. Are there any spreadsheets out there that people have shared that would make the entire process easier for those of us starting out?

    by FJK56 — February 19, 2021

  19. Hello FJK56,

    If you have MS Office suite on either your home or work computer you would have Excel already loaded. Click on the “start” button followed by the “Excel” icon. Once you do that you will see about 25 preloaded spreadsheets with all of the column headers, formulas, etc. ready for you to use. The one I use for our budget is logically titled: “Personal Monthly Budget”. Begin loading the numbers from your credit card statements, investment statements and checking book, etc. and soon you will have a very detailed living breathing document.

    Good luck, Danno

    by Danno — February 20, 2021

  20. FJK56 – yes, we all have had to adapt. We retired early when my husband’s Parkinsons just wouldn’t let him work any more. You’re doing the right thing and planning is key, I have used “Open Office” – a free and “Office” compatible software that offers word processing and spreadsheet capabilities.

    Good luck!

    by HEF — February 20, 2021

  21. I just wanted to thank everyone who has made legitimate and insightful comments on retiring. Now, I feel that I can breathe a little. After having our own business for 29 1/2 years a huge financial issue change our lives and we came away with nothing but no debts. Took several years to repay what was stolen by others, but we did it.
    So, needless to say, the retirement plans that were in place were liquidated to accomplish this and we started over. That was in 2009. We are now 70 and 71, still working (for others), good health, saving every penny possible, almost own our home, small 401K for each and no debt except house and car.
    We have had plenty and we have had little (actually nothing) and lived through it. We did not even realize we were in “training” for retirement and I am sure we will make it on SS, savings and 401K’s.
    Thank you again.
    BBC

    by BBC — March 3, 2021

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