Saving for retirement
Everyone knows they need to save for retirement, but how much they need to save is less clear. Some numbers – like $1 million – get thrown around. Many people don’t have this amount. In fact, according to a report from the U.S Government Accountability Office, 52 percent of household age 55 and older have no retirement savings at all.
Even for people who do have $1 million in savings, some experts are now warning that this might not be enough. A variety of factors impact how much people actually need. Here are the things you need to consider when determining how much you need to retire.
Calculating Your Retirement Expenses
As with any budget, figuring out how much money you need is a matter of looking at your expenses. Although some costs may decrease during retirement – for example, if you’re living in your own house and you’ve paid off your mortgage – others may increase. Here are some of the typical expenses retirees should plan for:
- Housing costs, such as mortgage payments or rent
- Medical expenses
- Taxes, including property taxes as well as taxes on income
- Insurance premiums
- Transportation costs
- Food, including groceries and dining out
- Travel and leisure activities
- Clothing and other incidentals
- Credit card and any other remaining debt
- Gifts and charitable donations
According to a 2017 estimation from Fidelity Benefits Consulting, medical costs alone could total $275,000 on average throughout retirement. To estimate your possible medical expenses, use the AARP health care costs calculator.
The Longevity Question
Another variable that impacts how much a person needs for retirement is that person’s life span. The longer a person lives, the more money that person needs for retirement. Advances in medicine mean that modern retirees can expect longer – and more expensive – retirements.
Women tend to live longer than men. According to the Social Security Administration, a man turning 65 now can expect to live an average of 84.3 years, and a woman turning 65 today can expect to live an average of 86.6 years. Approximately 25 percent of today’s 65-year-olds will live past 90, and 10 percent will live past 95.
You can use the Social Security Administration’s Life Expectancy Calculator to determine how long your retirement might last.
Accounting for Inflation
When calculating the amount you need to save for a comfortable retirement, don’t forget about inflation.
Inflation means that the spending power of money decreases over time. In other words, if you calculate that you currently need $3,000 per month to maintain your lifestyle, you can assume that you’ll need more than $3,000 per month to maintain the same lifestyle 15 years from now. In fact, assuming an inflation rate of 3 percent, you’d need $4,673.90 to maintain the same lifestyle.
To see how inflation could impact your retirement, use the inflation calculator at calculator.net.