How to Estimate Your Retirement Savings Needs

Feb 16, 2023 2 min read

How much money you need to retire isn’t an easy question. Many factors impact how much you’ll need to save. Here’s a helpful guide as you set your savings goals.

Base Your Needs on Your Current Income

An easy first step to calculating how much you’ll need to save for retirement is by looking at your current income and spending habits. According to AARP, a good monthly retirement income is 80 percent of your pre-tax working income to maintain your standard of living. 

Outline Your Retirement Expenses

The above 80 percent is a suggested starting point, and it’s important to remember that you could need more or possibly less depending on your retirement expenses. To estimate your retirement expenses, consider bills like an outstanding mortgage, car and home maintenance, groceries and more. When you start outlining your monthly living expenses, you’d be surprised at how quickly it adds up. 

Here are some expenses to keep in mind:

  • Housing (rent, mortgage, insurance, property maintenance and taxes)
  • Taxes (federal, state, capital gains)
  • Gifts (holidays, birthdays, charitable giving)
  • Recreation (dining out, traveling, hobbies)
  • Education (college expenses for loved ones)
  • Debts (loans, credit cards) 
  • Utilities (water, gas, electric)
  • Transportation (auto maintenance, gas, public transportation)

How Will Your Expenses Change?

Starting your retirement is an exciting time, and often new retirees want to maximize their new freedom and downtime. If you plan to relocate in retirement, remember to build in moving expenses to your savings goal. Have you always dreamed of traveling abroad? Chances are you couldn’t travel as much while working, so it’s important to save more outside of your standard living expenses to make your travel dreams a reality. 

As we age, we tend to need more frequent doctor’s visits and prescription fills than when we were 25. Without a job, it’s important to remember that you’ll need to purchase your own healthcare coverage and without company benefits, it’s usually more expensive.

Not all expenses go up when you retire, with kids out of the nest, you could save on expenses like phone bills, clothing, groceries, etc. Additionally, you may qualify for senior discounts – saving you money.

Decide When to Retire

Traditionally, the age to retire has been 65, but when you should retire depends on your situation. If you’ve hit your retirement goal early, keep in mind you’ll be assessed a 10% penalty on any withdrawals you make from a traditional IRA or 401k if you’re under the age of 59 ½ . With this high of a fee, it’s best to wait to start making withdrawals until after then. 

Legally, you’re not required to make withdrawals from your retirement savings until the age of 73. In that case, if you enjoy working or have another source of income, your retirement savings could maximize its investment potential. 

Estimate Your Life Expectancy

One of the difficult factors to consider when saving for retirement is calculating how long you’ll live. The next time you’re in for a checkup, discuss with your physician what your overall health is and ask about what the average life expectancy is for someone like you. There’s also life expectancy calculators available online, although they are general and don’t always consider personal health information. The average life expectancy in the US is 76, a three-year drop from 2019.

Identify Your Sources of Income

Most individuals have one to two sources of income, but in retirement you’ll likely have several. As a retiree, you are eligible to receive Social Security and you’ll have the ability to withdraw funds from any of your retirement accounts. Additionally, you may receive a tax refund in the spring (depending on your financial situation).

How to Close Retirement Income Gaps

If you’re looking for ways to keep you busy in retirement while also bringing in a little extra cash, consider applying for part-time work. You could work at a café, local bookstore and more. When you work after retirement, you’re able to postpone withdrawing large funds from your retirement account, allowing it to last you longer.

Planning for your Future

If you’re looking for help mapping out your path to retirement, contact your local Farm Bureau agent or advisor.

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.