There are so many sources out there claiming so many different endpoints to be comfortable in retirement.
But which of them are true? Do you really need $1 million in retirement savings to have an income in retirement worth having? Will your retirement nest egg need to deliver 80% of your pre-retirement annual income in order to live comfortably? Or is the magic number 90%?
We asked some financial planning experts and this is what they told us about retirement and how much you will need to retire in comfort.
The Relationship Between Desired Annual Retirement Income and Retirement Savings
We should start with a look at the relationship between your retirement savings account and your annual income in retirement.
A lot of people tend to be surprised at how much income you can derive from retirement accounts or, to be fair, how little.
Our financial advisors tell us that with $300,000 in the bank at retirement, you can expect to be able to withdraw around $12,000 a year if you want to ensure that your income lasts throughout your retirement based on average life expectancy.
If you have $1 million, you can draw down closer to $41,000 a year and if you have $1.5 million it's about $61,000 a year.
We should note that interest rates can dramatically affect how much you can draw from your savings at any time.
Financial advisors say that you should try to save based on what you think your expenditure once you reach retirement age will be rather than on your annual pre-retirement income.
This is because everyone's retirement plans are different. If you want to cruise the world, have expensive vacations, and drink fine wine, you're going to need more in the bank than someone intending to move to Thailand or the Philippines for retirement and lead a very modest lifestyle.
What Do People Spend Money On At Retirement Age?
Most people tend to spend quite consistently during their lives on certain items whereas others are much more variable.
Seniors, for example, tend to spend less on their housing than the employed when they first retire but this increases once they pass 75 and need additional assistance to lead their lives comfortably.
Healthcare costs are higher for seniors than for those in work too.
However, as you might expect, seniors should know that this is often offset (and thus doesn't require additional retirement income) by spending less on clothing, transport, and entertainment than working people do.
Overall, on average people do spend about 80% of their annual salary when they are living a comfortable retirement. Though, as we've already said – your investment strategy should be about calculating retirement savings goals that serve your needs rather than the average person.
Will Social Security Be Enough Income?
No. While social security will certainly continue to exist in some form or another, it's unlikely to come close to the percentage of your annual salary that you need to be comfortable with in most places.
Certainly, America's safest retirement destinations would be beyond your reach if you were relying on social security benefits alone.
This means it's important to talk to a financial advisor or, at the very least, use a retirement calculator to calculate retirement savings that match your aims.
And you should always remember that investing involves risk and make sure your investments balance such risks – you don't want your monthly income relying on a single investment source you want different retirement accounts for your monthly savings. Get specialist advice on this, the Internet is not the place to get solid advice on building a balanced portfolio.
Can You Work In Retirement, Really?
If you reach retirement and your current annual income is not enough to enjoy yourself can you work to support yourself and boost your income?
Well, you can and, in fact, 31% of retirees do so according to the Employee Benefits Research Institute. There's just one issue with this – according to the same report 71% of the retirees surveyed had intended to keep on working.
That means for every person who keeps working, there's more than one who can't meet their annual retirement expenses with their savings and they can't work for them either. That means many people are not leading a rich and rewarding retirement and have missed their retirement goals.
How Do You Know Where Your Retirement Account Is At Right Now?
You don't have to delay retirement if you save enough for it. If you don't understand your current financial health when it comes to retirement you should sit down with an independent financial advisor as soon as possible and examine your savings.
They will help you compare your savings to your peers, examine your objectives and your current financial position and help you make decisions for a more comfortable future.
Final Thoughts On Money And Retirement
Retirement can be awesome, but you need to have enough money available for not working to be enjoyable.
That means saving enough money while you're working to meet your living expectations as a senior.
The best way to get to that point is to work out what kind of life you want to lead and then work with a financial advisor to develop a plan that delivers on your expectations.
The earlier you start on this, the easier it is to achieve.