A comfortable retirement requires careful planning. You must know how much money you need to last the rest of your life and where that money will come from. Otherwise, you could struggle to pay your bills in your final years.
If you're nearing retirement or already there, you should be able to answer the following questions easily. If you can't, set aside some time to reevaluate your retirement plan. Your financial security depends on it.
1. How much money do you need to cover your expenses in retirement?
Conventional wisdom says most retirees need 70% to 80% of their pre-retirement income in order to cover their living expenses. But it's different for everyone. If you travel often, you'll probably spend more money than someone who spends their retirement at home, and you may need more than 80% of your pre-retirement income to cover your living expenses.
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You can approximate how much money you'll need by adding up the total cost of your expenses in retirement -- mortgage payment (if applicable), utility bills, groceries, etc. Keep in mind that some of your current expenses will disappear. You'll no longer have to save for retirement when you're in retirement, so don't include the monthly amount that you're setting aside for retirement right now. Just focus on living expenses.
Inflation will increase the cost of living over time, and you must account for this. You can't know how quickly inflation will rise, but a good estimate is 3% per year. If your living expenses amount to $40,000 this year, they could be $41,200 this yea,r and $42,436 the next year, and so on. A retirement calculator can help you calculate this.
2. How long will your retirement savings last?
Based on your calculated living expenses, you should have some idea of how many years your current retirement savings will last. Compare this number against your estimated life expectancy. The average 65-year-old man today can expect to live until about 84 while the average 65-year-old woman can expect to live to almost 87. Of course, your life expectancy may be different, depending on your lifestyle and family health history.
If your retirement savings are not enough to see you to your estimated life expectancy, you'll have to make some changes. Consider cutting your expenses in retirement or picking up a part-time job to reduce your withdrawals from your retirement accounts. If you're still working full-time, consider increasing your retirement contributions.
3. How do you maximize your Social Security benefits?
You can begin Social Security at 62, but if you plan to live a reasonably long life, this may not be wise. In order to get your full benefit per check, you must wait until your full retirement age (FRA). This is either 66 or 67, depending on when you were born.
If you start claiming at 62, you'll only get 70% of your scheduled benefit per check if your FRA is 67 or 75% if your FRA is 66. For every month you delay benefits beyond your 62nd birthday, your benefit checks will increase by 2/3 of 1%. You'll hit 100% of your full benefit amount at your FRA and the maximum benefit at age 70. This is 124% for adults with a full retirement age of 67 and 132% for those with a full retirement age of 66.
It's your choice when to start claiming. Delaying benefits will net you more money per check, but you may not be able to wait until your FRA or age 70 if you need Social Security to help pay your bills. A common strategy for couples is for the lower earner to begin benefits at 62 so the couple has money to sustain them while the higher earner delays benefits until he or she qualifies for a larger check. Alternatively, you could both delay benefits as long as possible if you don't need Social Security to get by. Think through all of your options and talk with your spouse, if you have one, to come up with a plan for when to begin Social Security.
In addition to choosing the right age to start taking benefits, you can increase your benefits by increasing your income, if you still have a job. Benefits are based on your average monthly income during the 35 highest-earning years of your life, so anything you do to bring up this average will increase your Social Security checks. You can estimate your current Social Security benefit by creating a my Social Security account.
Arming yourself with this information will help you feel more comfortable with your retirement plan. If the answers to these questions trouble you, make some adjustments. It's better to do this now than when you've run out of savings.
FAQs
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
What is the most effective way to make sure you have enough money when you retire? ›
6 ways to maximize retirement savings
- Take responsibility for your retirement. ...
- Start to protect your income by using a diversified retirement plan. ...
- Create lifetime income with the potential to grow. ...
- Save enough to get the match. ...
- See what a difference a few dollars can make. ...
- Look for more ways to save for retirement.
In general, you should aim to have 10 times your preretirement income saved by the time you reach age 67, according to Fidelity. That means that, theoretically, someone with a $100,000 salary should have $1 million saved by the time they retire. That's about in line with what many Americans are aiming for.
What rule of thumb is used to determine how much money you need after you retire? ›
The 4% rule states that you should be able to comfortably live off of 4% of your money in investments in your first year of retirement, then slightly increase or decrease that amount to account for inflation each subsequent year.
How to get $3,000 a month in Social Security? ›
Earnings of just $5,703 per month, or less than $68,500 per year, would suffice to get you to the point at which claiming Social Security at 70 would pay you that $3,000 per month amount.
Is there really a $16728 bonus for Social Security? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
What is considered a good monthly retirement income? ›
Let's say you consider yourself the typical retiree. Between you and your spouse, you currently have an annual income of $120,000. Based on the 80% principle, you can expect to need about $96,000 in annual income after you retire, which is $8,000 per month.
What is the $1000 a month rule for retirement? ›
One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.
How much money should a 70 year old have to retire? ›
How Much Should a 70-Year-Old Have in Savings? Financial experts generally recommend saving anywhere from $1 million to $2 million for retirement. If you consider an average retirement savings of $426,000 for those in the 65 to 74-year-old range, the numbers obviously don't match up.
What is the average social security check? ›
Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.
However, not a huge percentage of retirees end up having that much money. In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.
What does the average US citizen retire with? ›
This Is the Average Income for Retirees in America
The median income for Americans 65 and older is $50,290. The mean (average) is $75,020. Average annual expenditures for Americans 65 and older are $57,818. The average Social Security retirement benefit check is $1,907 as of January 2024.
How long will $400,000 last in retirement? ›
Safe Withdrawal Rate
Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.
How long will $1 million last in retirement? ›
How long will $1 million in retirement savings last? In more than 20 U.S. states, a million-dollar nest egg can cover retirees' living expenses for at least 20 years, a new analysis shows. It's worth noting that most Americans are nowhere near having that much money socked away.
How long will $500,000 last in retirement? ›
Yes, it is possible to retire comfortably on $500k. This amount allows for an annual withdrawal of $20,000 from the age of 60 to 85, covering 25 years. If $20,000 a year, or $1,667 a month, meets your lifestyle needs, then $500k is enough for your retirement.
Who qualifies for the $1657 Social Security check? ›
One must either be over the age of sixty-five, blind and/or disabled. Additionally, they must have a limited income and resources as the program is need-based and aims to assist beneficiaries to cover basic costs for food and shelter.
What is the highest Social Security amount at full retirement? ›
The maximum Social Security benefit at full retirement age is $3,822 per month in 2024. It's $4,873 per month in 2024 if retiring at age 70 and $2,710 if retiring at age 62. A person's Social Security benefit amount depends on earnings, full retirement age and when they take benefits.
Who qualifies for an extra $144 added to their Social Security? ›
You must be enrolled in Original Medicare and pay your Part B premiums without state or local financial aid to be eligible for the giveback. Only some Medicare Advantage Plans offer this benefit, and in select service areas.
What is the 10 year rule for Social Security? ›
The number of credits you need to receive retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (10 years of work). If you stop working before you have enough credits to be eligible for benefits, the credits will remain on your Social Security record.
