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Retiring with enough savings is crucial to maintaining your lifestyle in your later years. But an alarming 60% of Americans are projected to fall short of having adequate retirement savings, according to the National Retirement Risk Index.
So how do you know if your retirement savings are sufficient? This article will provide guidance on assessing if your nest egg is robust enough to sustain you in retirement. Read on for key factors to consider, benchmarks to measure against, and tips to improve your retirement readiness.
Key Takeaways
- Project your retirement expenses based on your ideal lifestyle and healthcare needs.
- Compare estimated spending to your income sources like Social Security and pensions.
- See if your current retirement savings align with age-based benchmark multiples.
- Boost contributions, adjust investments, and use calculators to model savings.
- Work longer, downsize your home, or consider annuities to close any gaps.
- Create a retirement roadmap with milestones to stay on track over time.
Assessing Your Retirement Lifestyle Goals
The first step is to envision your ideal retirement lifestyle. Will you travel often or live a quiet life at home? Do you plan to pick up expensive hobbies or low-cost activities? These choices affect your spending.
Make a detailed retirement budget estimating costs for necessities like housing, food, transportation, and healthcare. Factor in discretionary spending on travel, dining out, hobbies, and entertainment.
Your retirement expenses will likely differ from your working years. Healthcare costs may rise but you may spend less on housing, commuting, and professional expenses.
As you age, increased healthcare spending is likely. Fidelity estimates healthcare costs in retirement will be $315,000 for a 65-year-old couple. Budget for premiums, copays, deductibles, vision and dental care, and medications.
Once you have an estimate for retirement spending needs, compare it to your projected income from Social Security benefits, pensions, and other streams. This reveals how much your retirement savings must provide annually.
Calculating Your Retirement Income Gap
Add up your expected income sources to determine how much retirement savings you need to close the gap between expenses and income.
Social Security benefits will be a key part of your retirement income. But the average 2023 monthly payment of $1,827 for retired workers only covers about 40% of pre-retirement income.
If you have a defined benefit pension, estimate your future monthly payments. Just 33% of private industry workers have access to pensions today.
Look at other income streams that may help fund retirement like rental properties, royalty income, structured settlements, or small business ownership.
Subtract your total projected income from your estimated annual spending needs in retirement. This reveals how much your retirement savings must provide annually to close the gap.
Getting Your Retirement Savings on Track
If your current savings fall short of providing the income needed annually in retirement, take steps to get your retirement savings on track:
Boost Your Savings Rate
Saving more is key if your nest egg is behind. Raise your 401(k) contribution 1-2% annually to increase your savings rate. Utilize catch-up contributions if 50 or older.
Adjust Investments for Growth
Review your asset allocation and ensure you have enough invested in stocks for growth potential. The longer your timeframe until retirement, the more risk you can take.
Use Retirement Calculators
Online calculators can model your current savings trajectory and show the impact of increasing contributions. This helps ensure your savings stay on track.
Closing the Retirement Savings Gap
If you are nearing retirement age and facing a sizable savings shortfall, here are some options to close the gap:
Delay Retirement
Working longer allows more time for your savings to grow. Just one extra year of contributions and growth can make a big difference.
Downsize Your Home
Trading your house for a smaller home or moving to a less costly area reduces living expenses in retirement. Proceeds from the sale also boost your nest egg.
Consider Annuities
Immediate or deferred annuities can provide guaranteed lifetime income to cover essential spending in retirement. This reduces risk of outliving savings.
Creating Your Retirement Savings Roadmap
To stay on track for your retirement goals, create a roadmap with age-based savings targets and milestones:
- Age 30: 1x your salary
- Age 40: 3x your salary
- Age 50: 6x your salary
- Age 60: 8x your salary
- Age 67: 10x your salary
Review your retirement savings annually on your birthday. Are you hitting each savings multiple milestone for your age? If not, reassess your contributions and investments to improve your trajectory.
Retirement readiness takes diligence. But with the right roadmap, you can be confident your retirement savings are on track to sustain your future lifestyle.
Conclusion
Retiring with adequate savings takes diligence. While you can’t control market returns, you can control your savings rate, investment choices, retirement age, and spending during your working years.
Use the milestones, benchmarks, and tips provided to assess your current retirement readiness. With foresight and commitment, you can take the steps needed today to ensure your nest egg is on track to support your desired retirement lifestyle tomorrow.
Frequently Asked Questions
How much do I need to save each year for retirement?
Aim to save 15% of your pre-tax income annually, including your employer match if you have one. This savings rate from an early age should result in adequate retirement savings.
What is the 4% rule for retirement?
This rule says you can safely withdraw 4% of your retirement savings each year to cover expenses without running out over a 30 year retirement. So to have $50,000 in annual retirement income using the 4% rule, you would need $1,250,000 in savings.
How do I calculate my retirement expenses?
Add up all your expected costs in retirement for basics like housing, food, transportation, clothing, healthcare, insurance, and discretionary spending on entertainment, travel, and hobbies. Then subtract any expenses that will disappear after retiring like commuting costs and retirement plan contributions.
What if I don’t have enough retirement savings?
If you are behind on savings, work longer to keep building your nest egg, downsize your living situation to reduce expenses, and consider guaranteed income products like annuities to provide income for essential costs.
When should I start planning for retirement?
It’s never too early to start planning – ideally you should begin saving in your 20s. Use retirement calculators as soon as you start working to see if you need to increase contributions. Meet with a financial advisor for guidance on retirement planning.
Disclaimer: The information provided in this blog post is for general informational and inspirational purposes only. We’re sharing this information to offer ideas, tips and motivation for starting a business, but this should not be considered professional advice. Starting a business is complex with many moving parts, and what works for one aspiring entrepreneur may not work for another. Before taking any action, please consult with legal, financial, tax and other relevant professionals to determine the best steps to take for your own specific circumstances. The financial estimates, costs, revenues, timelines etc. mentioned in this post are approximate numbers gathered at the time of researching & publishing this post and are subject to change. We do not guarantee any specific financial or other results/outcomes.
