How much do you need to save for a secure retiremement?

A long, secure retirement is a goal of many Americans. Reaching that goal is achievable, but can be tricky. The first step is to determine how much income you will need. While some expenses will decrease others, like health care will increase. My advice is always to target 100% income replacement That will

give you a cushion for unanticipated expenses and to deal with inflation. Let me tell you from five years of retirement experience, those expenses will happen; a new refrigerator, $1,500 in car repairs, $1,750 in out of pocket health care costs each of the five years, $7,000 to paint the house and rising property taxes just to name a few.

So, how do you translate an income goal into a savings goal. I find that an annuity calculator is a good way to estimate the cash you will need.

For example, let’s say your target income is $5,000 per month beginning at age 65. The amount you currently earn. Using an annuity calculator which tells you how much you would need to buy an annuity with that monthly payment will give you a good idea of a savings target. So, if you lived in Ohio, were male and wanted the annuity to begin at age 65, you would need about $882,270 to provide $5,000 a month to you for life, However, if you wanted a spouse to have that income upon your death you would need $1,074,492. This assumes the spouse is female and also age 65 at the time of annuity purchase.

Remember, these are estimates in today’s dollars. Where you live, the age at which the annuity begins, your beneficiary’s age and interest rates will ultimately affect the numbers.

In addition to this income most people will also have a Social Security benefit. Using the Social Social Quick Calculator for the above earnings at retirement, it shows an estimated monthly benefit of $1,720.00 (at age 66). If there is a spouse of the same age their combined benefits would be $2,580 (less Medicare and Part D premiums).

Now you are going to say, wait a minute that income is greater than the income before retirement. Yup, it is, on the day you retire at least, but that does not mean you have to spend it all if you don’t need it. Inflation will eat away at your basic income leaving only Social Security with an inflation adjustment. And then there is always the “what if.” What if you suddenly need a new car, what if you are hit with extraordinary medical bills, what if you really want to take that special vacation with friends or what if one of your children truly needs some financial help?

How you live your life before and after retirement is your business. Perhaps I am a bit too conservative for your taste, but there is reality in the numbers, so know your numbers as you plan for retirement.