Whether you’re a young professional just beginning to plan for retirement, or you’re quickly nearing retirement age, it can be overwhelming to calculate how much to save. Retirement, like most seasons of life, comes with a lot more unknowns than certainties.
How much is “enough” retirement savings?
What if my retirement income needs change?
What level of medical care will I need?
What life expectancy should I plan for?
What if the market drops?
Will I be able to retire comfortably?
The exact retirement savings amount you need to enjoy your Golden Years is tough to estimate with precision. But there are a few strategies you can use to make sure your savings rate today, and in the years to come, can generate the income you want in your later years.
How much should you be saving for retirement?
If you’ve ever used a retirement calculator to estimate how much you should save for retirement, you’re familiar with the basic costs to plan for:
- Housing. How much you expect to spend on rent or your mortgage, plus home maintenance.
- Basic needs. Your food, utilities, and everyday expenses.
- Taxes. Your property taxes and retirement income taxes should be included in this number.
- Healthcare costs. Your expected medical insurance premiums, medical expenses, prescriptions, and potential long-term care costs.
- Leisure and lifestyle. Your budget for hobbies, entertainment, travel, and other expenses.
When you add these numbers up, you may get a figure somewhere around $1.8 million—the average retirement savings goal reported in Charles Schwab’s latest personal finance survey.
While that figure may sound daunting, with a strategic investing and tax-optimized plan in place—and the right retirement account options along the way—you may not need to save as much of your annual income as you think.
In fact, once you have a ballpark estimate of how much retirement savings you need to create a comfortable annual income, you can use these three retirement “levers” to accelerate your savings growth:
1. Your retirement age, (especially if you’re taking Social Security)
When saving for retirement, your planned retirement age is one of the biggest determinants of how much you should set aside. About a third of retirees applying for Social Security benefits are 62 years old. But did you know that by waiting to retire until you’re 70, you can boost your monthly benefits by up to 76%? Taking advantage of this significant Social Security payout at 70, which can add up to as much as $4,555 per month, can significantly reduce how much you need to save before retirement.
Even if you choose not to take Social Security, or aren’t eligible for the benefit, retiring later in life can help ensure you have enough money to enjoy the moments that matter most to you.
2. Your investment mix
How much you should save for retirement can depend largely on what retirement accounts and specific investment strategy you leverage along the way. Some investments, like 401(k) accounts and Roth IRA accounts can impact the tax rates you pay today and when you retire. And the level of risk you take on while you save for retirement also affects the annual income you can expect to receive later in life.
At Cook Wealth, when we work with clients who expect to retire on a fixed income, like those who receive a pension, inflation is a common concern. When inflation increases faster than your annual earnings, what was a comfortable retirement can quickly become a financial crunch.
To protect against inflationary pressure, we typically build out retirement income plans that include a mix of both stocks and bonds. The bonds will be significantly less volatile and can provide a ballast for your portfolio during market turbulence, while the equities drive your long-term returns.
This two-part strategy gives retirees the peace of mind that their retirement savings are protected from wide market swings—and allows you to withdraw money from a variety of places as you need it.
3. Your definition of “retirement”
What does retirement really mean to you? Is it taking time off to travel and be with family, or shifting your focus to side pursuits that bring you joy and a little income? Or maybe a mix of both! Remember, a full retirement and a full-time job aren’t your only two options.
One of the best retirement savings strategies you can leverage, if you’re not ready to fully leave the workforce, is building a side business. Many of our clients “retire” from a traditional job to consult, coach, or create—positions that offer greater flexibility and meaningful fulfillment in this unique season of life.
A side hustle can also significantly boost your retirement savings plan, allowing you to retire earlier, or with less in your retirement accounts. At the very least, continuing to earn an annual salary into retirement helps you save money along the way—and have a wider margin when unexpected expenses arise.
With the right savings plan in place, your retirement goals may be closer than you think
At Cook Wealth, our holistic approach to planning, investing, and tax optimization helps our clients meet their retirement savings goals and enjoy their earnings along the way. By proactively looking for opportunities to maximize your retirement accounts—and take-home pay in the meantime—we’ll help you build a comprehensive plan that can weather volatile markets and make your ideal retirement possible.
Book a free intro call here to meet our hands-on team—and create a retirement plan you’re confident in.