Broker Check

Retirement: How Much is Enough?


David-Louis Browne, AIF®

Retirement Plan Account Manager

Due to the SECURE Act, the Department of Labor is now requiring plan sponsors to provide lifetime income illustrations on their plan’s benefit statements. This will calculate the estimated lifetime income stream that a participant’s account balance may generate. However, will that amount be enough? Is there a gap between what you have and what you will need? After spending years of saving and investing for retirement, the day will come when you reach the retirement red zone, and you should have a strategy in place as to how you will replace your normal work income with your retirement income. How much is enough? How much money should you have saved prior to retirement?

As you begin to prepare for retirement, there are several things that you should consider, as your approach to these can impact your income in retirement.

What Will Your Retirement Look Like?

As a rule of thumb, it is recommended that you set yourself up to be able to replace at least 75%-85% of your working income with retirement income (investments, retirement accounts, social security, etc.). It is also important to consider what kind of lifestyle you plan to have – will you take up a part time job, maintain your current lifestyle, travel the world, staycation, or volunteer your time?

Review Your Finances to Determine How Much Is Enough

What do you expect to be included in your retirement income? This includes fixed and variable retirement income, such as social security, pensions, annuities, payments from retirement accounts, part time work, rental income, etc.

What are your expenses? This includes your normal monthly expenses (utilities, food, insurance), medical expenses, debt that you anticipate not being paid off by retirement, and both expected and unexpected life changes.

Important Factors to Consider:

  • Social Security – How much of your income will be replaced by Social Security? Social Security was never meant to serve as a retiree’s sole source of income, but rather as a supplement. The more that you earn, the less that Social Security is going to replace. In addition, it is worth considering when the right time is to begin taking your monthly Social Security benefits. A person is eligible to begin claiming benefits upon reaching age 62 and as late as age 70. The earlier you claim the less your monthly benefit will be, however, postponing those benefits until a later date (closer to age 70) will increase the benefits substantially.
  • Healthcare Costs – Healthcare costs continue to serve as one of the largest expenses for those who are in retirement. According to the Fidelity Retiree Health Care Cost Estimate[1], an average couple at age 65 could need approximately $300,000 saved (after-tax) to cover healthcare expenses. Understanding Medicare, as well as other products such as Long Term Care, can contribute to making sure you have the best coverage for your healthcare needs.
  • Inflation RiskOver the course of your working years, inflation (increased costs of goods and services) will erode the purchasing power of your money and retirement savings. It is important to make sure you have an investment strategy in place, as the costs of healthcare, transportation, food, and additional services will continue to increase over time.
  •  TaxesAre taxes going to go up or down in the future? Where are they now compared to where they will be when you’re in retirement? Will you be in a higher tax bracket or a lower tax bracket? There is a chance that either situation could be the case, and there are ways to diversify your tax picture by having investments in taxable, tax free, and tax deferred accounts.
  •  Debt – Organize your debt! It’s important to know how much is owed, the term (if applicable), the monthly minimum payment, and the interest rates (fixed or variable). Listing out these debts include student loans, credit cards, mortgage, car payments, etc. Paying off certain types of debt (interest on student loans and mortgage) can reduce your tax liability.
  •  Retirement Income StrategyDo you know where your paycheck will come from in retirement? A retirement income plan can help determine where the money will come from in the most tax efficient manner.
  •  Estate PlanningEstate planning involves preparing your assets for an orderly transfer upon death. If you unexpectedly pass away, is your estate prepared? Do you have a will or trust? Life Insurance? Do your heirs know where to gather all information regarding your assets and your liabilities?

The thought of retirement can be extremely exciting, as it’s an opportunity to relax, travel the world, and spending time doing all the things you want to do for the rest of your life. Let the experts at Tycor help guide you in the planning process. Call us today at 610-251-0670.