When can I retire and how much money do I need?

When can I retire?

No matter how much you have saved up, deciding when you can or should retire can be a complicated question. Your health, family, and lifestyle can play just as big a role as your age. However, when it comes to the financial side of this question, there are three primary factors to look at to help you determine when you can retire: the type of retirement you want, when to begin taking Social Security payments, and your other financial preparations and savings. Armed with the right information, you could find your ideal age for retirement.

1. What retirement do you want?

Your lifestyle and the associated costs can vary dramatically depending on your goals. If your dream retirement is a quiet life at your lake cabin, you may not need millions. However, if you plan to travel often or live in the city, you may need much more. Some questions to consider: How much will it cost annually to maintain your retirement lifestyle? Do you have any health issues that might require extra savings? Knowing the answers to these questions can help you better understand both when you will be able to retire and how much you’ll need to save to help you get there.

2. What is full retirement age for Social Security?

Full retirement age is the age in which you are eligible to receive full Social Security benefits—for those born after 1960, it’s 67. You can claim Social Security as early as 62 but it comes at a cost; you’ll receive a permanent reduction of up to 30%, depending on your Full Retirement Age. So, if you plan to retire early, you’ll need to plan carefully. On the other hand, you can increase your Social Security payments if you delay taking payments later than age 67, up to 70. If you can bridge the gap with other savings, you can maximize your benefits. See the Social Security full retirement age by year of birth at ssa.gov.

3. How much income do you need to retire comfortably?

Now that you’ve thought about the retirement you want and have decided when to claim Social Security, it’s time to look at all your savings and income. The earlier you retire, the more savings you’ll need. This may seem obvious, but every year earning an income and letting existing savings grow makes a large difference, and many don’t consider all the costs of early retirement, especially when it comes to healthcare and Medicare eligibility. For a helpful estimate of your income, a retirement savings calculator is a good place to start.

How much does retirement cost?

Costs vary widely and different formulas can be used to determine how much we might spend in retirement. A common, simplified rule to go by is the 4% rule  in which you spend 4% of your investment savings in the first year of retirement and then adjust for inflation annually. If you start here and work backward, you can begin to work out how long your savings will last. Let’s start by assuming you want a fairly modest retirement, for example, spending between $60,000 to $67,000 annually over the course of 25 to 30 years. In that case, you’ll calculate the savings you need by dividing your spending targets of $60,000 and $67,000 by 4% ($67,000 ÷ .04 = $1.5 million and $67,000 ÷ .04 = $1.675 million). In this example, you would need $1.5 million to $1.675 million to retire and meet the desired spending levels.³

How much do you need to save for a comfortable retirement?

A common retirement benchmark for retirement is to save 25x your anticipated retirement expenses. Knowing what you have and understanding what you’ll need is key to preparing for retirement. See if you’re on the right track by looking at the average savings benchmarks by age. For guidance and peace of mind, it helps to speak to a financial professional about your retirement goals so you can start to form a more defined roadmap for retirement.

What are some tax strategies to consider for your retirement?

Reducing your tax burden during retirement requires preparation. There are ways to invest while limiting your potential tax exposure¹. Roth IRAs, for example, can be a good option as you pay tax upfront but receive no penalty upon withdrawal so long as you wait until you are age 59. Another good strategy is to diversify your retirement income. Receiving income through Social Security, IRAs, or 401(k)s, or through pension plans, annuities, and other investments could help ensure that you are covered against market fluctuations.

How much money do you need to retire by age?

Tracking your income and expenses is key to understanding how much money you need to retire. The typical formula is to replace 70% to 90% of your annual pre-retirement income through savings and Social Security². To get to a definitive number, you’ll want to balance your cost of living and your healthcare expenses with your retirement income. Many costs you face today will be lower as a retiree. Things like mortgage payments, work expenses, and taxes are all typically lower. And don’t forget that your 401(k) and other investment contributions end as they become a source of income.

How much money do you need to retire at 65?

According to a recent survey, Americans think they’ll need $1.46 million to retire comfortably.³ However, the cost of living in your location and lifestyle are huge variables. Following the formula to replace 70% to 90% of your pre-retirement annual income, if you earn $100,000 pre-retirement, you’ll need a portfolio worth roughly $1 million to $1.2 million. But surveys and formulas aside, to get a better idea of your number, you need to balance retirement income—investments, savings, and Social Security—with your expenses.

How much money do you need to retire at 60?

At any age, you need to make sure your costs do not exceed your income during retirement. The best way to work this out is to break down your retirement costs. Just note that every year that you add to your retirement adds to the amount you need to save. And remember that you can’t receive Social Security before you turn 62 and you might want to wait until your full retirement age to receive your full benefit. To get a better idea of how much retirement will cost you, try a retirement calculator. This can give you an estimate of how far your savings will take you.

How much money do you need to retire at 55?

If you want to retire at 55, in addition to bridging the gap to Social Security, you must consider the cost of healthcare as you’ll need private insurance for 10 years. Medicare activates when you turn 65. To get to a more concrete number, first figure out your annual spending in retirement and then multiply it by 25. That’s the figure that you should target if you want to retire at 55.

How much does a couple need to retire?

Retirement planning for couples is no different than singles. You still need to plan ahead so your post-retirement spending does not exceed your post-retirement income. Many people follow the 4% rule to withdraw 4% of their savings in the first year and adjust that amount annually after accounting for inflation. So, just like anyone, how much a couple needs depends on how much their costs will be.

Retirement needs FAQs