By | February 23, 2016

Developing a sense of how much money you need in retirement should begin long before you plan to retire.  How much money do you need to retire?Still, it’s a good question to ask yourself at any point: “How much money will I need to retire?”

It doesn’t take a rocket scientist to realize that calculating retirement income needs is big business.  Just Google it!  You will find that nearly every big investment company out there, from Edward Jones to Ameritrade, and other finance related entities want to get your attention.  The best advice I can give here is talk to your own financial advisor, someone you have a relationship with that you can trust.

Information for Your Financial Advisor

Prior to meeting with your financial advisor, here are some things to be thinking about:

  • What does it mean to retire? Does it mean that you’ll stop working all together and move to a deserted island?  Does it mean that you’ll stop working the job you’ve worked your whole life and just work part time, at Wal-Mart or some other part time employment?  Or perhaps a happy medium somewhere in between.
  • What standard of living do I want in retirement?” In other words, do I want to live the same way I am now, spend the same amount I always have?  Some retirees downsize and need less disposable income.  Some retirees dream of traveling the world, which may increase the need for accessible funds.
  • When do I want to retire? If your answer is “the sooner the better”, then hopefully you’ve been planning for your retirement for years.  However, it is more likely you are asking, “When can I retire?”  Your financial advisor can run several scenarios for you so you can analyze the standard of living you could afford at various ages.  It may be that with your investment portfolio you will need to work for ten more years to achieve the same or comparable standard of living to the present, if that is your desire.  These scenarios will take into consideration such factors as mortgage payments and other expenses, inflation, etc.  If you are married, consider if your spouse will retire at the same time.

For your financial advisor to review your current financial health and answer the question “How much money will you need to retire?” be prepared, and bring the following materials to your appointment: recent paystubs, several months of bank statements, your quarterly investment account statements, any information you have regarding your future pension options, the latest Social Security Administration estimates, and last year’s tax return.  Your financial advisor will take all of this information and make projections for you.

The expertise of an investment expert will help you 1) think through how your expenses may change later in life; 2) identify and factor in outside sources of income, like Social Security; and 3) estimate for inflation.

Retirement Income CalculatorsPlanning for Retirement

There are all sorts of retirement income calculators on the internet.  Many times these will land you on a website trying to sell you something.  So be careful!  For this article, I tried a retirement income calculator from Fidelity and entered information for Harry as follows:

  • Harry is single and lives in Cedar Falls, Iowa.
  • Harry was born in 1970, so he is currently 45
  • Harry earns $50,000 per year and saves $500 per month.
  • Harry is going to begin taking Social Security at age 66.
  • No pension, IRA or 401K information was entered for Harry
  • Harry projects he will need $3000/per month in living expenses

This particular calculator provided that Harry’s retirement accounts and social security benefit will provide $49,409 of combined post-tax retirement income. Based on his selected lifestyle in retirement, it was recommended that Harry would need a retirement income of at least $60,888/ year.  He is going to fall short at his current level of savings.

Like Harry, most Americans either realize they aren’t saving enough for retirement or aren’t even asking “How much money will I need to retire?”  Likewise, many people who are currently retired are going to find out they have totally inadequate amounts saved and will likely run out.  This happening, in part, due to extended life expectancies.  We all need to change the way we are saving, when we start saving, and when we retire.  Otherwise, what is happening at an alarming rate is that retired people find their funds running out and need to find work, drastically change their standard of living, and many, especially lower-income people, will end of trading off food and medication needs.

Currently, about two out of three people have picked up some sort of retirement savings along the way, but sadly, one third of American are totally depending on Social Security to pay for their retirement expenses.  There has been so much concern regarding our broken health care system, and it should become evident soon that our retirement system is also broken, and perhaps about to hemorrhage.  People should be considering carefully just how much money is needed to retire, but all too many fail to ask that question.

What Can We Do?How much is needed to retire?

Procrastination + Retirement Saving = Bad News.  Get started saving as early as possible.  In addition, many of us will need to work longer to give our 401(K) and other assets longer to grow.  In addition, it will reduce the number of years of our life expectancy that we’ll have to support ourselves.

How much savings is adequate?  It really depends on when you start saving and when you finish working. With a 4 percent rate of return, if you start saving at age 35 and retire at age 67, it’s been suggested you need to save 18 percent of your income. That’s after taking Social Security into account.

So, how much do you need to retire? The bottom line is that for many people currently in retirement or facing retirement in the near future, their financial health is failing or at least not what it should be.  This is something we address years before retirement.

If you are one of these folks struggling in retirement, or wondering when the rat race will ever end for you, talk to your financial advisor, regroup and set the plan into motion.  You’ve worked to hard to not be able to enjoy some freedom.  Consider developing another income stream.  Don’t sit back and what for things to change, make the decision to change your future, today!

Please join the conversation by adding your own comments, questions, and experience in the comments below.  I promise both to read and to respond.

~ Dana



  1. Alex Blond

    Need info on selecting a financial advisor. This is helpful, too!

    1. Dana Hagstrom Post author

      We aren’t able to give referrals at this time. We would suggest you look for someone in your area with a C.F.P. (Certified Financial Planner). Best wishes to you.

  2. HolisticJB

    Hi Dana
    This is a great, if somewhat scary, post.
    I guess we all tend to think of retirement as being a long way away when young and just starting work. But it creeps up quickly and im sure many people are suddenly hit with the realisation that they will need more than anticipated.
    I guess its easier to save a little for a longer period than a lot later in life.
    Hope this post reaches a younger audience who still have time to do something about it
    Really good post and got me thinking!

    1. Dana Hagstrom Post author

      You are so right. Thank you for your comments. Retirement creeps up on us before we know it, and the sooner we start thinking about it the better. I hope that you are in a position of strength in this regard!

  3. GaymerJock

    As someone who has just entered their 40’s and is still paying off student loans, I haven’t had much opportunity to be able to save for retirement as much as I would have liked.

    Sometimes I feel like at my age I might not have much of a chance to save anything, but my student loans are about to be paid off and I will soon have a lot more extra money. Do you think there’s still time for me to put money away for retirement? Would it even be worth it at this point?

    1. David Hagstrom

      It’s absolutely worth it to begin saving and investing for retirement as early as possible. Sure, it’s better to start in your 20s; but if you’re in your 40s, by all means start there! Talk with your financial advisor about your retirement needs. Don’t be overwhelmed by any shortfall; just put a plan in place and get started. At the same time you may want to investigate other possibilities for building an online business of your own to help fund your retirement.

  4. liza

    I am approaching retirement and after reading your post, I realized that I will not have enough to retire on. I wonder if Fidelity covers territories as well. I really appreciate your post and feel I’ve got to stop procrastinating and do something. Thank you again for this article.


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