How Much Do You Need to Save for Retirement?

While $1 million is sometimes cited as the ideal number for retirement savings, this assumes a one-size-fits-all approach to retirement planning. Everyone’s retirement goals are unique, and preparing for retirement might not be as simple as saving a specified amount. It’s worth taking a more in-depth look at your finances and future needs to see if you have enough saved for retirement and what retirement costs to factor into your plan.

Longevity Risk

After saving for many years, you will finally start to draw down those savings to fund retirement, and must make them last for the rest of your life. This is difficult considering that we’re living longer than ever and often want to maintain our pre-retirement lifestyle in retirement. However, there are options for protecting against longevity risk. Pension or no pension, develop a plan for creating stable retirement income in the short-term that isn’t tied to the volatile stock market; and growth of income in the long-term where stock market investments may be more essential. Also consider spousal survivor needs: how much income will your spouse lose if you pass away early, and how can you replace that lost income?

Factor in Inflation

Have you factored inflation into your retirement plan? Let’s say you start retirement with a $1 million nest egg. You know what $1 million is worth now, but what about in 20 years? After 20 years with a 2% inflation rate (the Fed’s “target” interest rate), $1,000,000 would have the buying power of only $672,971.[1] Inflation erodes the value of savings and will continue to do so after you retire. The Fed said that “inflation has risen, largely reflecting transitory factors”[2] and seemed unconcerned about the potential for higher inflation and the fact that March consumer prices rose 2.6%.[3]

Potential for Long-Term Care Costs

An average 65-year-old couple retiring today will need an estimated $295,000 to cover their healthcare costs[4], and that doesn’t even include long-term care costs. Between rising healthcare costs and the fact that an estimated 70% of today’s 65-year-olds will need long-term care at some point[5], overall costs could be much higher. Long-term care costs can be staggering, and Medicare doesn’t typically cover them. In 2021, the median yearly cost for an in-home health aide was $54,912, and the median yearly cost for a private room in a nursing home was $105,850.[6]

We will work with you to create a comprehensive retirement plan that takes all retirement costs into account. Sign up for a no cost, no obligation financial review to take the first steps towards a retirement plan that’s more than just a number.

[1] https://www.buyupside.com/calculators/inflationjan08.htm

[2] https://www.federalreserve.gov/newsevents/pressreleases/monetary20210428a.htm

[3] https://www.cnbc.com/2021/04/13/us-consumer-price-index-march-2021.html.

[4] https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

[5] https://acl.gov/ltc/the-basics/how-much-care-will-you-need.html

[6] https://www.medicareresources.org/faqs/to-what-extent-will-medicare-cover-long-term-care/