Your comfort level
Your needs in retirement may differ from those in your working life. Determining the percentage of your salary you can comfortably live on is an important step. The Merrill Edge Personal Retirement Calculator (Link: https://www.merrilledge.com/retirement/personal-retirement-calculator?src_cd=bac_fined) can be a great way to figure that out.
Rule of thumb: You’ll need as much as 85% of your preretirement income to maintain your current lifestyle.
Source: Government Accountability Office
Your anticipated expenses
It helps to consider what you’ll spend your money on in retirement.
Living expenses
$44,664
The average annual expenses (including out-of-pocket health care costs) for U.S. households headed by someone 65 or older.
Debt
$47,900
The median debt for heads of household over 55, if they have debt.
Inflation
2%
Inflation (2% is the Fed’s target rate) can reduce the buying power of the money you have saved.
Length of retirement
20 years
The typical length of retirement is about 20 years, for now. It could be even longer in the future.
Source: U.S. Bureau of Labor Statistics: Consumer Expenditure Survey, 2015; Employee Benefit Research Institute, 2015; Federal Reserve, 2015; Social Security Administration, 2016
Your anticipated income
Most retirees have more than one source of income. It helps to know what sources you can rely on.
This chart shows how most Americans fund their retirements.
Sources of retirement income for all households headed by someone 65 and older
20.9% Pensions
401(k)s, IRAs, pensions and annuities
32.2% Earnings from wages, salaries or self-employment
33.2% Social Security
Social Security
$1,342 Average monthly benefit in 2015
9.7% Interest, dividends and other income
4% Other
(including public assistance)
Source: Social Security Administration: 2014 Income of the Aged Chartbook and 2015 Fact Sheet
Other key factors
There are many factors that determine how long a nest egg lasts, and you may be able to control a number of them.
Location
Where you choose to retire matters a lot. Cost of living, taxes and more can fluctuate from place to place.
Ability to cut expenses
The things you bought while working, such as clothes or a car, might be sufficient in retirement, which can help keep your costs down.
Systematic withdrawal strategy
The amount you can sustainably deduct from your retirement savings depends on several factors, but a good rule of thumb is 4% annually.
Social Security claiming strategy
Waiting to claim Social Security adds up (Link: https://bettermoneyhabits.bankofamerica.com/en/retirement/maximize-social-security): Your benefit grows about 8% each year from age 62 until age 70.
Crunching the numbers
The numbers above may help you figure out how much you need to put away for retirement. Chances are it’s not precisely $1 million. If you’ve weighed your options and decided you need to start saving more, Merrill Edge has put together some tips to help boost your retirement savings (Link: https://www.merrilledge.com/article/10-tips-to-help-you-boost-your-retirement-savings-whatever-your-age-ose), no matter your age. The important thing to remember is: It’s never too late to start a nest egg.
