How much money do you need to retire at 65?

How much money do you need to retire at 65?

The 2018 Gallup poll showed that an Average American expects to retire at the age of 66.

If that’s something you’ve also expected, it might be a good idea to start planing the financial side of your retirement a bit earlier.

Whether you’re 25 or 55, it’s never too early, nor it is too late to start caring about your retirement. 

And what better way to do so than carefully plan out your savings to ensure a peaceful time afterward?

How much do you need to retire at the age of 65?

The average lifespan of an American is 79 years, according to macrotrends.net.

Obviously, we’d all like to be around for a couple of more years, so let’s assume that our lifespan is at least 90.

If you leave work at 65 and wish to have a sustainable income until you’re 90 years old, that means you’d have to plan your savings so that it lasts for 25 years.

In order to calculate how much money are you going to need, you multiply these 25 years with the annual amount you’d like to live on for the rest of your life. 

The Bureau of Labor Statistics provides the data, which shows that an average US citizen aged 35 to 64 earns around $50,000 / year. On the other hand, folks who are older than 65 earn around $47,000 / year. 

Assuming you’re earning a bit over the average, say $65,000 a year, and you would like to maintain that living standard, you’d need $1,625,000.

Small note

Well, actually you’d need less than that to maintain the actual standard, as your working-life salary will be decreased by the amount you have to save, which you don’t have to do when you’re retired.

How Much do you need to save every month?

Earning $65,000/year means an income of $5,416.66 every month. 

If you were to start saving at the age of 30, you’d have 35 years to save $1.625 million. This means saving $46,428.57 every year, or $3,869.04 every month. These calculations do not include taxes, benefits, and other forms of non-linear income.  

This leaves you with $1,547.62 every month to live. Not too much, is it? 

Well, assuming that the median national rent in 2015 was $1,380, that’s almost all your monthly budget. Of course, this data is a mix of median and average sums, but you get the idea. 

Saving for your retirement is not an easy task. Even if you have great self-control when it comes to spending money on unnecessary stuff, it’s still pretty difficult to get by on $1.5k a month.

So how do you go about it?

How to plan your retirement savings?

  1. Identify where your money goes

Run an experiment every month, and take note of every cent you spend. After 30 days you’ll get a grip on where your money goes, and it will be easy for you to identify what part of those expenses could be avoided or were unnecessary.

  1. Cut down on stuff that’s not necessary/important.

After the 30-day-experiment you must have found a lot of unnecessary stuff. Cut down on it. Maybe consider selling your car and switching to public transport? 

While it is important to cut down on avoidable expenses, you need to make sure that you live your life. Have a set amount of money you spend on entertainment every month. Wise money planning allows you to save a lot of cash while keeping your sanity.

  1. Try contributing to your 401(k).

If your employer offers it, and you’re eligible, it’s a common thing to do for Americans.

401(k) is a retirement savings account that allows and employee to funnel a portion of their income into long-term investments, up to a set yearly maximum. The maximum as of 2020 is $19,500. Keep in mind that in most cases you can’t withdraw any money without tax penalties until you’re 59.5 years old.

Although this alone is certainly not enough to cover the retirement, if you start putting this money aside early enough it might stack up. This is usually a good idea, as this kind of savings plan allows for some tax reliefs and possibly some benefits.

  1. Automate your savings.

By putting the money aside the moment you get it, there’s no temptation to spend more than needed, just because you can. Automation can help a great deal, as you don’t have to think about this. 

Check with your bank or employer if that kind of automation is available for you.

What if you struggle to save that much money?

There might be numerous reasons why you can’t save up the desired amount. And I suppose, what’s a better way to seek solution than getting a professional look into this?

You can hire a financial advisor, who is a professional at investments and savings. They can look directly into your case and identify the problems for you. 

A personalized savings plan and advice from craftsmen may help a great deal when planning your retirement.

Conclusion

Saving for retirement requires a lot of planning and self-control. It is critical that you run the math and put in your own numbers. Take your income, age, monthly expenses, and desired retirement pension int account.

If you don’t fancy doing the math by yourself, here’s a great retirement calculator.

If you were to save up $1.6M over the course of 35 years this would mean saving around $46,000 a year. 

Despite the complexity of all the tax and 401(k) and IRA stuff, saving for your retirement is easy, once you plan everything right.

Whatever you do, start as soon as possible. The earlier you start saving, the more capital you can build up by the time you retire.