The cost of a comfortable retirement
Retirement is something we all look forward to, whether we plan on spending more time with family and friends, pursuing our passions, or simply enjoying leisure activities. However, what often gets lost in the planning process is the cost of retirement. How much money will you need to maintain your quality of life for the next few decades?
Standard retirement planning rules of thumb
Financial experts have devised various rules of thumb to determine how much you need to save for retirement.
One standard piece of advice is to save 10 to 12 times your annual salary1 by the time you retire. So, for example, if your current salary is $120,000 per year, you should have at least $1.2 million saved up by the time you retire.
This rule of thumb focuses on savings. However, many people find it easier to think about retirement in terms of income rather than savings. This is because the amount of money you will be able to draw from investments and savings accounts depends largely on the performance of the markets and how much risk you're willing to take with your portfolio.
In approaching a calculation based on this rule, some financial experts recommend replacing 80% of your pre-retirement income.2 In other words, if you make $120,000 per year now, you'll need at least $96,000 per year to maintain your lifestyle in retirement. The idea is that you don't have to replace 100% of your income because you'll be able to eliminate certain expenses in retirement, including saving for retirement and commuting to work.
Whether you look at retirement planning from a savings or income perspective, it isn't necessarily a one-size-fits-all equation. Depending on your current living expenses and desired lifestyle, you may need to save more or less than these general guidelines recommend.
So let's look at a few essential factors that can help determine how much you'll need to support your desired quality of life in retirement.
The amount you can expect to receive in Social Security benefits will depend on earnings during your working years. The maximum monthly benefit for someone who retires at full retirement age in 2023 is $3,627 per month3 or $43,524 annually. However, this amount will be lower if you retire early or higher if you delay claiming Social Security benefits until age 70. Maximum benefits change each year because they generally track inflation.4
You can find a personalized estimate of your Social Security retirement benefits in your Social Security Statement, which you can get online by logging into your my Social Security5 account. The statement shows your personalized benefit estimates at multiple ages, depending on when you want benefits to start.
Social Security alone likely won't be enough to maintain your current lifestyle in retirement. For instance, if you earn $120,000 and start claiming benefits this year at full retirement age, Social Security would only cover about 36% of that amount.
Many retirement rules of thumb focus on savings. However, it's sometimes easier to think about retirement in terms of how much income you'll need.
If you have a defined-benefit pension through work, that pension will guarantee a set level of income for the duration of your retirement. It may even be transferable to a surviving spouse after death. These payments are usually based on your salary and years of service.
When considering how to factor in any defined-benefit pensions you may receive, here are a few key points to keep in mind:
- When will you be eligible for a pension?
- How much will your monthly or annual payments be?
- Are survivor benefits available?
Consult your pension plan documents or your company's benefits department to get answers to these questions. This will help you determine how much of your retirement income could come from a pension and how much you'll need from other sources.
Housing is another major factor in your retirement costs. If you own your home outright, you can avoid the costs associated with monthly mortgage payments or rising rent costs. This gives you more financial flexibility in retirement, allowing you to devote more money to leisure activities or travel.
However, if you rent or have a mortgage, those monthly payments could be a major factor in determining how much you'll need to save for retirement.
It's also helpful to consider whether you intend to stay in your current home, downsize, or move somewhere more fitting for your desired retirement lifestyle.
Family needs and expectations
When planning for retirement, also consider how you want to provide for future generations, including your grandchildren or heirs.
Do you want to be able to help fund college tuition for your grandchildren or leave a financial legacy to heirs? You can reach these goals through a variety of methods, including 529 plans, trusts, annuities, and life insurance. Your goals and the ways you go about reaching them will vary, but it's a good idea to consider them when calculating the cost of your retirement.
Medical and long-term care expenses
Medical expenses can be one of the biggest costs that retirees face. In fact, the average 65-year-old couple retiring today can expect to spend $315,000 on medical costs6 over their retirement years. While Medicare covers some medical expenses, it excludes many costs, including long-term care, hearing aids, and dental care.7
These expenses can quickly deplete retirement savings if they're not adequately planned for, so you may want to consider purchasing long-term care insurance or setting aside money in a dedicated health savings account to help cover these expenses.
The price of a comfortable retirement depends on a variety of factors and is about more than hitting some arbitrary retirement savings number. If you need help figuring out how much income you'll need and where this income will come from, contact your Synovus financial advisor. We can help you plan a comfortable retirement so you can enjoy your golden years without worrying about money.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
- Rick Munster, “How Much Money Do I Need to Retire?" MoneyFit, published December 8, 2022, accessed January 12, 2023. Back
- John Waggoner, “How Much Money Do You Need to Retire?" AARP, updated January 6, 2023, accessed January 12, 2023. Back
- Social Security Administration, “What Is the Maximum Social Security Retirement Benefit Payable?" accessed January 12, 2023. Back
- Social Security Administration, “Cost-of-Living Adjustment (COLA) Information for 2023," accessed January 12, 2023. Back
- Social Security Administration, “Social Security Statement," accessed January 12, 2023. Back
- Maurie Backman, “Average couple will spend over $300,000 on healthcare after retirement," USA Today, updated May 19, 2022, accessed January 12, 2023. Back
- Medicare.gov, “What's not covered by Part A & Part B?" accessed January 12, 2023. Back
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