Wondering how much to save? Start with these 3 questions
If you don’t know much you need to save for retirement, it’s hard to know if you’re on the right financial path or how much progress you’re making. While some experts recommend saving 10-12 times your current income, and others say you’ll need 70-80% of your pre-retirement income for each year of your retirement, the truth is that every retirement goal is as unique as the person saving toward it.
To make it easier for you to determine how much you’ll need to save, we’ve put together three key questions to consider. Once you’ve had a chance to think about your answers, use our retirement calculator to figure out how much income you’ll have in retirement, based on your current approach.
1. How much will you spend?
The biggest factor is how much you think you’ll spend in your retirement. Some expenses may be lower. For example, your mortgage may be paid off and your children may be supporting themselves. But some expenses, like health care, might be higher. People in the 65-74 age group currently spend an average of $13,000 every year on health care, while those 75 and older spend between $24,000 and $39,000 annually.1
2. How expensive will things be?
It’s important to factor inflation into your savings plan to stay ahead of the curve. Even just a 2.05% inflation rate would reduce your purchasing power by about 50% in 20 years2, meaning something that costs you $100 today will cost $150 in 20 years.
3. How long do you think your retirement will be?
When thinking about how long your retirement will last, be sure to consider your current health, your family history and how long men and women live on average. Once you’ve estimated how long you expect to live in retirement, add a few years and set that as your length of retirement. Men live an average of 18 years past age 65 while women live an average of 20.6 years past age 65.3
4. What other sources of income will you have?
In addition to the savings in your retirement plan account, you may be able to pull income from other sources when you retire. For example, you may get a Pension, have Social Security benefits, or individual retirement accounts (IRAs), other personal savings, military or employer pensions, or your spouse’s retirement plan. Don’t forget to take these and any additional income sources into account when figuring how much you should plan to save.
Ready for the next step? Try our retirement calculator
Our retirement calculator helps you figure out exactly how much income you’ll have in retirement, based on your current situation. Remember to include all your sources of income in retirement, including any pensions and social security benefits. You can also explore how some changes to your current plan, like increasing your contributions, could help you reach your financial goal even faster.
1 Source: https://www.rbcwealthmanagement.com/en-us/insights/the-real-cost-of-health-care-in-retirement
2 Source: https://www.vertex42.com/Calculators/inflation-calculator.html
3 U.S. Department of Health and Human Services, National Vital Statistics Reports, Vol. 66, No. 4 (August 14, 2017)
Important Note: Equitable believes that education is a key step toward addressing your financial goals, and we’ve designed this material to serve simply as an informational and educational resource. Accordingly, this article does not offer or constitute investment advice and makes no direct or indirect recommendation of any particular product or of the appropriateness of any particular investment-related option. Investing involves risk, including loss of principal invested. Your needs, goals and circumstances are unique, and they require the individualized attention of your financial professional. But for now, take some time just to learn more.
This article is provided for your informational purposes only. Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor.
Equitable Financial Life Insurance Company (New York, NY) issues life insurance and annuity products. Securities offered through Equitable Advisors, LLC, member FINRA, SIPC. Equitable Financial Life Insurance Company and Equitable Advisors are affiliated and do not provide tax or legal advice.
Equitable is the brand name of the retirement and protection subsidiaries of Equitable Holdings, Inc., including Equitable Financial Life Insurance Company (NY, NY); Equitable Financial Life Insurance Company of America, an AZ stock company with an administrative office located in Charlotte, NC; and Equitable Distributors, LLC.
