How Much Will You Need For Retirement? Think About:
- Longevity. Consider life expectancy. How does your current health and family health history influence your expectations for longevity?
- Healthcare Costs. The estimated total healthcare costs in retirement for a 65-year-old individual is $157,500.¹ Have you factored in additional savings for future healthcare costs? Have you thought about Medicare coverage options
- Savings. Have you reviewed a Monte Carlo retirement simulation to gauge the sufficiency of your savings?
- Income Needs. The recommended income replacement ratio for estimating future retirement expenses is 75 to 85 percent.² Do you have a current budget? Do you have an estimate for what you might need in retirement?
Are You On Track for Retirement? Consider the Income Replacement Ratio.
The general income replacement ratio guideline is at least 75 percent of pre-retirement income. Why not 100 percent? Because of reduced expenses in retirement, savings no longer needed for retirement, and, in general, a reduction in income taxes. High income earners will be more reliant on investment savings for retirement income, as Social Security will only provide a small portion of income. Discover a retirement savings checkpoint chart—plus hypothetical withdrawal rates for time horizon and portfolio allocation—in our PDF guide.
How can you save for retirement?
While contributing to a 401(k) or 403(b) retirement plan is a great first step, it may not be sufficient in adequately providing for retirement needs, particularly high-income earners. Aim to maximize contributions to retirement plans, and, whenever possible, seek additional savings opportunities
Compare different account types, including individual, joint, and trust accounts, traditional 401(k) and 403(b) plans and traditional IRAs, and Roth accounts in the downloadable PDF guide.
Avoid these Common Retirement Mistakes
- Saving too little and/or starting too late
- Retiring too early
- Assume maximizing your 401(k) or 4013(b) contributions will fully provide for your future retirement income needs
- Underestimating your lifestyle
- Underestimating longevity and future healthcare expenses
- Assuming too much risk to “catch up” for a shavings shortfall
- Holding too large of an allocation to a few securities and/or company stock
- Filing for early (reduced) Social Security benefits despite expected longevity
Questions to Ask an Apollon Advisor
- Do I have enough savings to retire? Before deciding to retire, an evaluation should be completed to compare current savings to future income needs. Reviewing a Monte Carlo simulation can be a helpful exercise to gauge the sufficiency of current retirement savings, while also estimating what might be left for beneficiaries.
- Does my portfolio allocation reflect my longer-term goals and needs? Given the potential for a retirement which could last 30+ years, it is imperative to have a portfolio allocation which is anchored to longer-term goals, risk tolerance, and time horizon. Some retirees may think retirement signals a time to “de-risk” the portfolio, but do not overlook the importance of continuing to grow portfolio assets during retirement years.
- How long might my savings last relative to my income needs? Periodically revisiting a retirement plan can be helpful to alleviate any concerns about running out of money. Your goals and needs may change over time; your retirement plan should have the flexibility to adjust accordingly.
Click here to view a PDF version of this guide.
Sources:
1 Fidelity – “How to Plan for Rising Health Care Costs,” data as of June 21, 2023
2 T. Rowe Price – “How to Determine the Amount of Income You Will Need at Retirement” (February 1, 2023)
