Retirement Income — Know Where You're Going
“If you don't know where you're going, you'll end up someplace else.” Yogi Berra
Start with some basic math. Say you currently make $6,000/month. Once you retire, you might expect to need about 75% of your current income for expenses. That means, in retirement you would need $4,500/month to meet expenses. Since few people* expect to draw traditional pensions any more, it can be hard to imagine where that monthly income is going to come from. To get a sense of what your actual retirement number may be, use our Retirement Planner Calculator.
*Exceptions may include military and government retirees, retired teachers, civil servants, etc.
Your projected monthly expenses in retirement may be higher than you expected. There are ways to adjust what you’re doing today to either come up with the amount you will need or reduce the amount you’ll need to save. Some options include saving more, retiring later, preparing to live on less or a combination of these changes.
Take “saving more.” You may not feel comfortable suddenly upping your withholding by, say, 5% a year. A fairly painless alternative could be to bump up your withholding gradually, perhaps 1-2% a year until you max out your contributions to your IRA or company retirement plan (or both!).
Of course, be sure to factor for Social Security. People may be confused by news stories projecting dwindling Social Security coverage. But for the foreseeable future, it will likely play a significant part in the retirement incomes of most Americans.
Everyone’s Social Security formula is different based on their age, earning history, current income, etc. But here is one example of how Social Security income can factor into retirement expenses:
A 53 year old earns $72,000/year
He plans to retire at age 69
It’s estimated that he would receive about $1880/month in today’s dollars when he retires.
If his expenses are $4,500/month in today’s dollars, then about 42% of his monthly expenses are covered by Social Security.
This is a hypothetical example. Individual results will vary.
Whichever path you choose, you will have much better odds of reaching your goals when you educate yourself about what will really be needed when you retire. As Yogi says, “When you come to a fork in the road, take it.” Because while “the future ain’t what it used to be,” “It ain’t over ‘til it’s over.”