How much will I need to retire?

  1. First, you must consider how much money you spend today. No one knows for sure, as this is not an exact science, but most financial advisors believe that you will need somewhere between 80% to 100% of your current income in retirement.
    For example , if you need $4,000 a month today to cover your living expenses, you will need approximately $3,200 to $4,000 when you retire.
  2. The next thing you need to do is factor in rises in the cost of living, inflation, and the impact inflation will have on your monthly expenses. So, if you were to retire five years from now and factor in 3% inflation, you will need between $38,400 and $48,000 to cover your living expenses for the year. Each and every year thereafter, you should factor in an increase in the cost of living, hence, an increase in your annual living expenses.

How much would it take to replace $1.00 with various rates of inflation over time?

Number of Years

Rates of Inflation

2%

3%

4%

5%

6%

5

1.104

1.159

1.217

1.276

1.338

10

1.219

1.344

1.480

1.629

1.791

15

1.346

1.558

1.801

2.079

2.397

20

1.486

1.806

2.191

2.653

3.207

25

1.641

2.094

2.666

3.386

4.292

30

1.811

2.427

3.243

4.322

5.743

The point is, if your annual living expenses are presently $40,000, and inflation is averaging 3%, 10 years from now you will need $53,756. ($40,000x1.344)

The chart above illustrates what $30,000, $40,000, $50,000, and up to $100,000 of hypothetical annual living expenses today, will need to grow to in future years, in order to keep pace with inflation. If you are 55 years old today, and your annual living expenses are $50,000, and you wish to retire 10 years from now, inflation brings your annual living expense to $67,195.

  1. Due to advances in healthcare and healthier lifestyles, Americans are living longer. Take a look at the life expectancy chart below.

If you’re 55, 60, 65, or 70 today, and you wish to retire a number of years from now, the chart above depicts your projected life expectancy. For instance, if you were a female who wants to retire at age 60, you should prepare for 23 years of retirement. A male retiring at age 60 should expect to live for almost 20 years. Once again, we all need to plan for life in retirement.

  • After inflation, your savings are affected by taxes, the costs of managing your savings (fees), and the safety of your investments. You should know that two of the most important factors affecting retiree’s savings are safety and cost. Find out more about tax-deferred annuities here.
    • Fixed and fixed-indexed annuities are safe because they guarantee both your principal and interest. Fixed-indexed annuities offer both safety and upside potential, with interest gains linked only to the positive performance of the S&P 500, Dow Jones, NASDAQ, or other indices. Once you have a gain it is locked in and yours to keep
      Click here to learn more about fixed-indexed annuities
    • Annuities are cost effective; 100% of your money is working for you, as there are no loads, fees, or charges.

In summary, although the amount of money you will need to retire may be daunting, retirement will come, and we all need to prepare to the best of our ability. American Annuity Advocates encourages you to review the information on our website, so that you may make the best decisions regarding your retirement savings options. Only after all of the choices on the spectrum of risk and return have been reviewed, can we say that we are making educated decisions.

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