As scary as retirement finances may seem, planning ahead helps.
In an ideal world, we'll all have enough to retire in style. I don't necessarily mean annual trips abroad (unless that's something you dream of), but rather, enough money to do the things that interest us while also covering the cost of living. The amount of annual income needed to achieve this goal varies, depending on where a person lives and what constitutes their "ideal" retirement.
We thought we'd figure out how much it would take for a person to retire with $100,000 coming in each year. For the sake of this illustration, let's say the person retires with their full Social Security benefits at age 67. And let's say the person exceeds the current average life expectancy of 79 and lives until they're 85. That leaves them with 18 years of retirement to plan for.
Social Security
The average Social Security retirement benefit as of May 2022 is $1,668. However, since the person in our scenario needs $100,000 per year in retirement, it's safe to assume that they earned a bit more during their working years. Let's say they were a higher-income worker and now receive $3,000 a month in Social Security benefits.
Since $3,000 x 12 = $36,000, we can subtract that from their desired income of $100,000, leaving us with a shortfall of $64,000 annually.
Retirement plan
If our retiree follows the common advice to withdraw 4% from their retirement plan each year, they would need a total of $1.6 million in various retirement plans and other income-generating investments.
If the retiree is pulling $64,000 each year from accounts totalling $1.6 million, that means they'll deplete $1.15 million in 18 years. That leaves $448,000 (assuming no interest to keep it simple) -- if they die at age 80. If they live beyond that, they have enough to keep them at an annual income of $100,000 for seven additional years.
But…
Withdrawing 4% annually for a total of 25 years could be unrealistic. While the current rate of inflation is high, the average rate between 1960 and 2021 was 3.8% annually. If we round up to 4% to be on the safe side, that means our retiree will do fine with $64,000 from retirement accounts and investments their first year of retirement, but would need $66,560 the next year to keep up with inflation. The next year, they would need $69,222, and so on. Either our happily retired friend cuts the amount of money they are willing to live on each year, or they deplete their retirement savings at a faster clip.
If they want to continue to receive $100,000 a year, they'll need to save closer to $2 million to account for inflation.
An incomplete picture
This entire scenario is based on the idea that the retiree is never going to require the care of an in-home nurse or move into a nursing home. While that's possible, it's best to plan for the worst. Hopefully, our retiree purchased long-term care insurance while they were still working and a sudden illness does not wipe them out financially.
It may also be that as our retiree aged, they didn't spend as much money and were able to draw less from their retirement accounts and investments.
The point is: There's no way to know for sure what the future holds. The best any of us can do is to invest as much as we are able until our retirement date rolls around.
How to make the most of investing
The key is always to start young. That gives compound interest the time it needs to do its magic. If starting young is not an option, the key is to start today.
Historically, the S&P 500 has grown by 10% a year. Conservatively, let's imagine that investments grow by 7% each year over the next few decades. Let's also imagine that you're able to put $12,000 a year into retirement. Here's how it would look, depending on the age you get started:
The thing that makes any scenario challenging is that it's impossible to account for all variables. While the person in our example wanted $100,000 annually, you may only want $60,000. Though the average rate of inflation typically hits around 3.8%, it could be higher or lower when it's your time to retire.
If you're not happy with the number you see here, consider adjusting your annual contributions. Some people add 1% more each year, while others cut something from their current budget (or take on a side hustle) to come up with more each month.
Any passive streams of income you develop now can also feed your retirement income. The idea is to start thinking about it now, no matter how old you are or how far off retirement may seem. The more you plan for retirement, the more likely it is that you'll hit your personal financial goals.
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FAQs
How Much Money Do You Need for $100k per Year? To create a retirement income of $100,000, you might need $1.9 million in savings.
How much do I need to save to have $100,000 per year in retirement? ›
So, if you're aiming for $100,000 a year in retirement and also receiving Social Security checks, you'd need to have this amount in your portfolio: age 62: $2.1 million. age 67: $1.9 million. age 70: $1.8 million.
How much retirement income from $300,000? ›
Let's walk through the scenario. With $300,000 planned for your use as a retiree, a retirement age of 50, and an anticipated life expectancy of 85 years, you need that money to last you 35 years. This should mean that your yearly income is around $8,571, and your monthly payment is around $714.
How much money do you need to retire with $250000 a year income? ›
How Much Do You Need to Retire: By Income
| Current income | Age 50 | Age 65 |
|---|
| $150,000 | $4,200,000 | $2,400,000 |
| $200,000 | $5,600,000 | $3,200,000 |
| $250,000 | $7,000,000 | $4,000,000 |
| $300,000 | $8,400,000 | $4,800,000 |
3 more rowsJan 8, 2024
Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.
What is the average 401k balance for a 65 year old? ›
Can I retire at 60 with 500k in savings? ›
You could retire at 60 with 500k, but it depends on what sort of retirement lifestyle you hope to enjoy.
What is considered a good monthly retirement income? ›
As a result, an oft-stated rule of thumb suggests workers can base their retirement on a percentage of their current income. “Seventy to 80% of pre-retirement income is good to shoot for,” said Ben Bakkum, senior investment strategist with New York City financial firm Betterment, in an email.
What is a realistic retirement income? ›
After analyzing many scenarios, we found that 75% is a good starting point to consider for your income replacement rate. This means that if you make $100,000 shortly before retirement, you can start to plan using the ballpark expectation that you'll need about $75,000 a year to live on in retirement.
How long will $600,000 last in retirement? ›
You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement.
McClanahan noted that even combined with an average Social Security benefit, $250,000 in savings is only likely to produce $2,632 a month over 25 years, when inflation and other factors are considered. That would mean a difficult struggle for many Americans.
Is $2,000 a month enough to retire on? ›
“Retiring on $2,000 per month is very possible,” said Gary Knode, president at Safe Harbor Financial. “In my practice, I've seen it work.
What is the most one can receive from Social Security? ›
The maximum Social Security check
Your maximum benefit if you file at full retirement age – between 66 and 67 – is $3,822 per month. Your maximum benefit if you file at age 70 – the age when extra benefits stop accruing – is $4,873 per month.
How much money do most people retire with? ›
The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances.
Can I live off interest on a million dollars? ›
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
What is the $1000 a month rule for retirement? ›
The $1,000-a-month retirement rule says that you should save $240,000 for every $1,000 of monthly income you'll need in retirement. So, if you anticipate a $4,000 monthly budget when you retire, you should save $960,000 ($240,000 * 4).
How much money do you need to retire with $120000 a year income? ›
Standard retirement planning rules of thumb
So, for example, if your current salary is $120,000 per year, you should have at least $1.2 million saved up by the time you retire. This rule of thumb focuses on savings. However, many people find it easier to think about retirement in terms of income rather than savings.
Can you retire $1.5 million comfortably? ›
Americans expect to need at have $1.46 million on average to retire comfortably, a new survey shows. That figure grew 15% from last year and by more than 50% since 2020. Savers are better off focusing on a holistic approach to income planning, financial professionals say.
How much money do you need to retire with $150,000 a year income? ›
The final multiple — 10 to 12 times your annual income at retirement age. If you plan to retire at 67, for instance, and your income is $150,000 per year, then you should have between $1.5 and $1.8 million set aside for retirement.
How much money do you need to retire with $80,000 a year income? ›
For an income of $80,000, you would need a retirement nest egg of about $2 million ($80,000 /0.04). This strategy assumes a 5% return on investments, after taxes and inflation, no additional retirement income, such as Social Security, and a lifestyle similar to the one you would be living at the time you retire.
