To determine whether you're on track to save enough money for retirement, review how well your projected retirement expenses, income, and lifestyle expectations align with your retirement portfolio balance.
Common Retirement Expenses
You'll likely have many of the same expenses in retirement as you had when you worked full- or part-time. Housing and living expenses, utilities, food, and transportation are life-long expenses. Some of these expenses may be lower than when you were working, but others might be higher. One expense likely to increase dramatically is health care. In 2021, the average retired couple (age 65) is expected to need approximately $300,000 to cover these costs in retirement.
Retirement Income Sources
Social Security, personal savings, pensions, 401(k) plans, and other investments are potential sources of income in retirement. You can estimate how much you'll receive in Social Security benefits using the Retirement Estimator. Remember that monthly benefits are unlikely to be enough to pay all your retirement costs. Expect to withdraw money from savings and investment accounts to cover monthly expenses.
Retirement Lifestyle Expectations
The amount you’ll need to save for retirement can vary depending on when you want to retire and the lifestyle you expect to enjoy after leaving the workforce. For example, if you plan to stop working at age 50 to travel more often, you must save more than someone who plans to retire at age 67 and only expects to take the occasional vacation.
As long as you save enough money during your working years, it’s possible to live comfortably even without relying too heavily on Social Security benefits or an employer-sponsored pension.
How Much Should You Save for Retirement?
The amount you should save for retirement depends mainly on your lifestyle expectations. Some experts recommend a savings target of 10x your salary by age 67. Others say 80% - 90% of your annual pre-retirement income is the magic figure you need to consider along with life expectancy, but everyone's needs are different. Instead of relying entirely on these figures, review your current spending and factor in how it might change when you stop working.
How to Increase Your Retirement Savings
The sooner you start growing your nest egg, the more options you'll have when your retirement date approaches.
If you haven't already done so, open a SAFE individual retirement account (IRA).
There are two basic types:
1) Traditional IRAs
2) Roth IRAs
While both offer a way to grow your deposits tax-free, they differ on when you pay taxes on the deposits.
- Traditional IRA deposits can be made with pre- or after-tax dollars. You typically pay taxes on withdrawals.
- Since Roth IRA deposits are made with after-tax dollars, withdrawals are tax-free.
Contact us today at 1-800-763-8600 to open a SAFE individual retirement account (IRA) or learn more about which option might be the best choice for your financial situation.
*This article is intended for informational purposes only. You should consult your tax advisor or other professional for recommendations related to your taxes and investments.