Will my monthly retirement income be enough?

During the working years, most people focus on covering daily expenses while also trying to set aside money for the future. But when retirement arrives, it can be nerve-wracking to wonder if you’ll have enough income to last and support the lifestyle you want in the years ahead. To boost your retirement readiness, here are some general guidelines to help determine how much income is needed to meet your goals for the future and what opportunities can bring in additional funds after retirement.

How much money is needed in retirement?

No one dollar amount applies to everyone when estimating the amount needed in retirement. The target amount often depends on individual circumstances such as lifestyle preferences, location, health care needs, and activities. A common method is the 80% rule which states that should try to aim to have 80% of your pre-retirement income annually while in retirement. Still, this number can be lower or higher based on your personal situation.

A good place to start might be calculating planned and unexpected expenses in retirement and comparing that with the amount of income that will be received from Social Security, pensions, retirement accounts, and personal savings. Meeting with a financial professional can simplify this process and help you land on a more accurate number.

How to determine what income is needed in retirement?

Determining the income needed in retirement involves several steps that help assess your financial requirements and goals. Here are general tips for calculating needed retirement income:

Calculate current expenses

Start by evaluating current monthly and annual expenses. This includes housing, utilities, food, transportation, healthcare, entertainment, and other regular expenditures.

Adjust for retirement

Consider how these expenses might change in retirement. For example, commuting costs may decrease, but healthcare expenses may increase. If choosing to age in place, a current home may require upgrades or modifications to make it more accessible.

Determine retirement goals

Think about the goals for the future. Does that include traveling the world, paying off debt, and helping with a child’s tuition?

Estimate retirement duration

Based on your expected retirement age, estimate how many years of income you will need.

Include other financial responsibilities

Some retirees may be in a caregiver role for an aging parent, financially supporting adult children, or are an investor in a small business.

Plan for unexpected expenses

Factor in unexpected costs such as home repairs, medical or family emergencies, and other unforeseen expenses.

How is retirement income typically spent?

Estimating how much retirement income is needed monthly can vary depending on individual circumstances and lifestyle choices, but here are some common types of expenses to help determine what might be covered by your retirement income.

Housing

Housing expenses generally can include mortgage payments (if not paid off), property taxes, homeowners' or renters’ insurance, maintenance, and utilities.

Healthcare

This can include premiums for Medicare or private health insurance, out-of-pocket costs, prescription drugs, and other health-related expenses.

Food and groceries

Including meals at home and the cost of going out.

Transportation

Vehicle maintenance, fuel, insurance, public transportation fares, and occasional travel

Travel and leisure

Vacations, hobbies, entertainment, and cultural activities

Debt payments

Some retirees may still have debts to pay off, such as credit card debt, car loans, or home equity loans

Other

In addition to day-to-day expenses, other costs to consider are taxes, charitable giving, clothing, and emergencies.

What is a good monthly retirement income?

According to the Bureau of Labor Statistics, people 65 years of age or older spent an average of $57,818 annually in 2022, which translates to approximately $4,818 per month. Again, each person’s needs and goals are different, so it’s important to run through a checklist and plan ahead to help determine how much income may be required before entering retirement. Since having enough income for retirement is finding the right balance between how much is saved and how much is spent, if expenses start to drain savings more quickly than anticipated, adjustments may need to be made, like reducing spending, reconsidering your lifestyle, or finding ways to generate additional income.

How can I earn more income after retirement?

If there is a gap between retirement income and expenses, there may be a need to bring in additional funds. This could include working part-time or generating passive income through investments or saving strategies. Another way to supplement a retirement income strategy and fill potential gaps is with an annuity. Annuities can provide a guaranteed income stream in retirement and, depending on the type, may offer a way to grow savings and create income that lasts for the rest of your life.

Deciding how much income will be necessary to meet all your retirement needs can feel overwhelming, but partnering with a financial professional can help minimize stress and allow you to walk through income needs together. Creating a retirement plan as soon as possible can allow savings to grow and help you prepare for the financial and lifestyle changes that retirement may bring. Each action you take is a proactive step toward securing your future well-being!

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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