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How Much Retirement Savings Do I Need?

How Much Retirement Savings Do I Need?

November 28, 2022
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For many folks I talk with, this is a common question. And my answer, for those who know me, is a bit predictable. How much you need to save depends on how you want to live in retirement. So, truly, it’s a different number for every family.

I am a financial planner who’s always an advocate for my clients – a fiduciary financial planner. As such, I love to help families reach their financial goals. If you would like to discuss your situation, follow this LINK to find a time that works for you.

You may also find it interesting to know what a recent study by the folks at The Harris Poll found out when they surveyed 2,381 American adults aged 18 or older. The respondents were asked how much they think they need to retire and the average was $1.25 million. At the same time, the report found that the average respondent had retirement savings of $86,869.

So, those two numbers give you some benchmarks to measure against. But, I suggest these averages are not very helpful since each family situation is so different.

Here are just some of the factors you need to consider as you calculate “your retirement number.”

  • When will you retire? 55, 60, 65 or 70. The difference between age 55 and age 70 is 25 years of additional retirement income.
  • How is your health? How long do you suppose you will live after retirement?
    • If you are 55 today, the Social Security mortality table suggests you will live to age 81 on average.
    • If you retire at 60 and have average health, that’s about 20 years of retirement income.
    • If you retire at 60 and live to 100, that’s 40 years of retirement income.
  • How do you like to live? If you live modestly, you need less income.
    • Monthly expenses of $2,500 per month coming from an IRA in the 25% combined state and federal income tax bracket requires $40,000 in annual IRA distributions.
    • If you assume the rule-of-thumb retirement distribution rate of 4% per year, that means you need about $1 million in IRA money to cover $2,500/month in spending.
    • If you need $7,500 every month, that means $3 million in IRA money.
  • Do you want extras? Many folks want to travel, help children or grandchildren or support charities in retirement. The amount of this sort of spending that you do, will add to your retirement need.

Clearly, the “magic number” question is a bit complex. Maybe you need advice from an experienced and well-trained financial planner. A great place to start looking for the right advisor is to talk with a couple of CERTIFIED FINANCIAL PLANNER™ professionals.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

  • Is the advisor always the client’s advocate – a fiduciary advisor?
  • Is the advisor paid by clients, not by a financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-first, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.