Projecting Your Income Needs

Projecting Your Income Needs — How Much Money Will You Need to Retire?


Projecting Your Income Needs — How Much Money Will You Need to Retire?

You'll need income as long as you live  - which could be into your mid-90s  - or longer. There are numerous variables you’ll want to consider when determining how much you’ll need to live comfortably in retirement. A general rule of thumb is to look at your expenses today, how much you need to cover them and how they will differ in retirement. Your lifestyle is going to change when you retire and these differences will affect what you spend each year. Let’s consider them.

Your lifestyle is going to change when you retire and the differences will affect what you spend each year.

Where you could spend less in retirement

Housing: By the time you’re in retirement, you may have paid off your mortgage, or you might choose to downsize your home, or move to a lower cost area.

Transportation: If you currently commute to work, gas and car maintenance costs may go down, unless you plan on hitting the road with all that free time. 

Clothing: Work clothing can be costly. If you spend retirement wearing jeans, dry cleaning and clothing costs may decrease.

Retirement contributions: No more paychecks means no more contributions into your retirement plans, so that expense can be checked off.

Food: If you’re looking forward to more relaxing meals at home, you might be able to trim dining-out expenses.

Why you’ll spend more in retirement

Housing: Even if you’re fortunate enough to no longer have a mortgage in retirement, you still may be considering buying or renting a vacation property, or even moving to a higher-cost area.

Medical costs: Replacing employer-provided health insurance can be expensive. Medicare doesn’t kick in until you’re age 64 and 8 months, so you’ll need individual coverage if you retire before then. Also factor in dental care, eye care, prescription costs and any supplemental Medicare insurance. 

Food: If you’ve compiled a list of 4-star restaurants you’ve been meaning to try, dining-out costs could rise. 

Travel: Many retirees use their newfound free time to visit all the places they didn’t have time to see while working. Travel can be costly and needs to be estimated in your spending plan.

Family assistance: If you think you might be providing some financial support to your children or grandchildren, make sure your income can handle it without putting your own financial security at risk.

Other key factors to consider

Due to medical breakthroughs and healthier lifestyles, there is a good chance that you’ll live well beyond your “average life expectancy.” And the longer you live, the more inflation you’ll face. The increases in the cost of goods and services could diminish your savings. Over time, there are other market risks to consider. Some, like market volatility, you cannot avoid. However, by picking a mix of investments that align with your time horizon and risk tolerance, you can help manage the delicate balance between risk and return.

There are a lot of wonderful things to look forward to in retirement. But, it’s important to also consider that things may turn out slightly different than you planned for. You may encounter your job ending before you planned, or increases in health care expenses for you or another family member. Planning ahead can set your mind at ease should you encounter these risks in retirement.

Plan with us

Make things a little easier for yourself by utilizing our Retirement Planning Calculator to estimate your future retirement income, including how long your savings may last.