Figuring out your retirement needs

Figuring Out Your Retirement Needs

How much you will need depends upon what kind of lifestyle you want

One million dollars used to be the savings goal for a well-funded retirement. But that number only works now if you can live comfortably on approximately $40,000 a year in today’s dollars, according to CNBC.com. If you don’t know how much money you will need to live the lifestyle you envision in retirement – or haven’t started saving at all – you’re not alone.

Although a majority of Americans feel better about their personal finances than they did a year ago, 33 percent of 30- to 49-year-olds have not saved any money for retirement, according to a 2014 Bankrate survey. Twenty-six percent of 50- to 64-year-olds are in the same boat, as are 14 percent of people 65 and older. If planning for your golden years has become a priority, here are a few methods to help you with the math, and some recommended steps that are applicable to all.

Examine how you spend now

A good barometer for your retirement lifestyle budget is your budget now. According to Census data, the median household income for those 65 and older is $34,000, but that is almost half the $66,000 for ages 55 to 64. When calculating your retirement budget, be honest. Retirees most often forget to include items like real estate taxes, insurance premiums, medical expenses and periodic costs, such as home and auto repairs.

Consider your future tax bill

Your tax bill in retirement is affected by your income sources. Mortgage interest, rental properties and income from investments that are not inside of a retirement plan may mean lower taxes. However, if you have a pension income, your home is paid off and/or you will be relying on qualified retirement plans, like IRAs or 401(k)s, then your taxes might be higher.

Arizona is an attractive retirement state, due to its tax-friendliness, according to Kiplinger Magazine. Great weather and golf notwithstanding, retirees are also drawn to the state’s low personal income tax rate of 4.54 percent. Social Security benefits are exempt, as is up to $2,500 of some retirement income. There is also no inheritance, gift or estate tax. Arizona’s affordable housing costs are one of the 20 reasons why The Huffington Post said the Grand Canyon State might be the best state to retire in.

Exercise a 'rule of thumb'

If all that math is too much for you, Fidelity.com offers a simplified rule of thumb. The financial advisement site suggests saving at least 8 times (X) your ending salary to help increase the odds that you won’t outlive your savings during 25 years in retirement. By taking a stair-step approach of saving 1X your salary by 35 years old, 3X by 45, and 5X by 55, you can set guidelines throughout your working life.

Savings advice for everyone

Time Magazine reported that each day more than 10,000 baby boomers enter retirement. But only about 25 percent of workers 55 and older say they’re doing a good job of preparing for their “best years,” according to the Employee Benefit Research Institute. No matter what stage of life you’re in, these planning steps will help you reach your goal:

  • Enroll in your workplace plan—the earlier, the better
  • Save at the highest levels possible
  • Increase your deferral rate periodically as your salary grows
  • Invest in a diversified asset mix
  • Do not overestimate your salary growth or your portfolio returns
  • As you approach retirement, envision the lifestyle you want, and estimate what it will cost
  • Own your plan—stick with it, stay engaged, and avoid taking out loans or cashing out when you change jobs.

Retirement may be around the corner or many years away, but the road to a comfortable one starts in the same spot for everybody. By figuring out what kind of lifestyle you want to lead when you’re done working full-time, you can estimate how much and how often you need to save for great golden years.