How Much to Retire

Thirtysomething? Fortysomething? These are your most active retirement savings years. Now is the time for you to take advantage of every strategy to maximize your retirement savings.

Did you get a raise? Use some of that money to increase your contributions to your employer's plan. Did you receive an inheritance? Use some of that money to fund your retirement.

This is a good point in your life to start working out a retirement strategy: when you want to retire, what you plan to do, and how much money you will need to get to-and through-retirement.

How Much Will You Need?

How much money you’ll need for your retirement depends on many factors, such as:

The Ups and Downs of Retirement Expenses

Only you know what you'll be spending money on during your retirement. But numerous studies have revealed some patterns that might be useful for your planning.

For example, recreation and travel expenses are usually higher during your first few years of retirement than in your later years. However, medical expenses can be very large in your later years. In fact, underestimating your expenses in your later years is a common mistake.

Use our monthly cash flow worksheet to estimate your expenses (your financial professional can also help).

Ups and Downs of Retirement Expenses
ExpenseEarly in RetirementLater in RetirementComments
Basic cost of livingInflation will likely cause basic living expenses to continually increase.
Business related expensesThese expenses are largely eliminated.
Clothing & cleaning costsBusiness & formal clothing, dry cleaning costs reduced.
Contributions to IRAs, savings plans, etc.You will probably not be making salary-deferred contributions to savings plans, but may add to IRAs and personal savings.
Health insuranceHealth insurance costs rise (significantly if coverage isn’t provided through an employer) until Medicare eligibility. You will still need insurance with Medicare, but it will probably be less costly.
Health care & medicationsExpect increasing dependence on health care facilities and prescription medication.
Mortgage-Mortgages likely to be paid off early in retirement.
RecreationRecreation expenses increase at first, but decrease later in retirement.
Taxes - income-Generally (but not always) taxable income decreases.
Taxes - real estate, salesReal estate and sales taxes will probably keep going up unless you move to a less expensive area.
Transportation, parking, commutationThe need to use automobiles extensively is reduced.

1 Bureau of Labor Statistics, CPI Inflation Calculator.

2 Paul Fronstin et al., Funding Savings Needed for Health Expenses for Persons Eligible for Medicare. Issue Brief no. 351. Employee Benefit Research Institute. December 2010.

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