Setting a Retirement Savings Goal
Updated: Oct 18, 2020
It’s difficult to reach a destination unless you know where you’re heading. Yet only 42% of workers or their spouses have tried to estimate the savings they would need to live comfortably in retirement. (1)
How Much Income Will You Need?
Everyone’s situation is different, but one common guideline is that you will need at least 70% to 80% of your pre-retirement income to meet your retirement expenses. This assumes that your mortgage is paid off, you have lower transportation and clothing expenses when you stop working, and you will no longer be contributing to an employer-sponsored retirement savings plan.
Although some expenses may be lower, others might increase, depending on your retirement lifestyle. Perhaps you want to travel more or engage in new activities.
Don’t forget to budget for medical expenses.
Estimate Income Sources
You can estimate your monthly Social Security benefit at different retirement ages by using the tool at ssa.gov/retire/estimator.html. The closer you are to retirement, the more accurate this estimate will be. If retirement is many years away, your benefit could be affected by changes to the Social Security system, but it might also rise as your salary increases and the Social Security Administration makes cost-of-living adjustments.
If you expect a pension from current or previous employment, you should be able to obtain an estimate from the employer.
Add other sources of income, such as from consulting or a part-time job, if some type of work is in your plans. Be realistic. Consulting can be lucrative, but part-time work often pays low wages, and working in retirement is less likely than you might expect. In 2019, 80% of workers indicated that they expect to work for pay after retirement, but only 28% of retirees said they had actually done so. (3)
The income from your savings may depend on unpredictable market returns and the length of time you need your savings to last. Higher returns would enable your nest egg to grow faster, but it would be more prudent to use a modest rate of return in your calculations.
Remember that all investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
A rough estimate of your retirement savings goal is a good beginning, and a professional assessment may be the next step. Although there is no assurance that working with a financial professional will improve investment results, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies.
(1–3) Employee Benefit Research Institute, 2019
This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent tax or legal professional.
The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2020 Broadridge Investor Communication Solutions, Inc.