If you are a woman in your 50s or 60s do you know how much money will you need to enjoy your retirement?
Unfortunately, there is no simple answer to that question. We all have different wants and needs. Also we all have different ideas what our lives will be in retirement. But we still have to decide how much money we NEED to live the way we want in our golden years. Some people are planning to live on much less than they use it right now, but others may want to spend more.
Let’s take a look at the list of factors and see if it helps to come up with your personal estimates:
Your current age
The more time you have before your retirement age, the less money you’ll need to save each month to reach your nest egg goal. The closer you come to retirement age, the more money you need to put aside into your retirement savings.
When you’re in your 30s, you have plenty of time to save in 401(k) and build a good size nest egg. When you’re younger, you can invest in stocks and see them grow over time. You don’t need to worry when the market goes down, because your portfolio will have time to recover losses.
But when you turn 50, the time is not on your side anymore and you have less time to save for retirement.
When you’re older, you’ll have fewer years to recover your investments from the bad economy or market volatility. At this age, there is a risk, that if the market goes down you would lose the major part of your retirement savings.
If you’re in your 50s and you want to retire early at 62, you’ll need to have enough savings to cover your everyday expenses and the healthcare costs.
You can start collecting an early Social Security paycheck even it comes as a reduced one, but Medicare will begin only at age 65. Before that, you need to cover your own healthcare costs and it will come as a big expense.
Your desired retirement age
Many resources recommend baby boomers to put off their retirement age until 70. Based on the statistics we will be better off financially if we choose to work longer.
The reason behind this number is that we have more years in retirement than previous generations. It means we need to have more savings and a larger nest egg to cover our expenses.
If you are planning on taking early retirement at age 62, you might be spending 25 to 35 years in retirement. Do you have enough money saved for so many years? The big mistake will be to retire early with small financial funds. After all, you don’t want to start looking for a job in your 80s.
Are you planning to retire together with your spouse or partner?
What age does he want to retire?
Is it possible to retire together or you need to do it separately?
This decision will affect your lifestyle. When you start planning at what age to retire, it will be a good idea to share your thoughts and ideas with your spouse or partner.
How much will I spend in retirement?
Think about your lifestyle when you retire. What are you going to do? How are going to spend your days? Are you planning to live the same lifestyle or dreaming about something more extravagant?
If you’re planning to live the same lifestyle, your expenses will be close to what you have while you’re still working. But if you’re planning to spend more in your future life, then you’ll need to save more each month right now so you can spend more money later.
Why do we need to make all these calculations, predictions and estimations?
We want to figure out how much money is enough to live a comfortable lifestyle in retirement.
How much is enough?
There are 2 easy steps to come up with your own number:
Step 1. The ballpark number
Many retirement planning books and financial gurus recommend saving a minimum of $1 million in order to retire comfortably.
The more detailed statistics recommend having 70% to 80% of your pre-retirement income to cover expenses in retirement. If for example, your income is $100,000 today, you will need to have $70,000 to $80,000 a year to retire the way you want.
Then if we use the same 70% to 80% number and multiply by the number of years in retirement, we will come with a more thorough estimate.
$70,000 x 25 years = $1.75 million
$80,000 x 25 years = $2 million
Not everyone likes to look at the ballpark numbers and not feel scared. It looks too high. There are many women who don’t have even a fraction of it saved in their retirement funds.
The next way would be to find out how much is your current spending and then figure out how much you’ll need to save for retirement.
Step 2. The current spending number
Do you know how much you spend per month? Per year?
If you don’t know how much your current spending is, start tracking your expenses right now.
Keep track of everything you spend money on, no matter how small is the bill. You need to look at your day-to-day spending as well as at your regular expenses. At the end of the day, you want to see a big picture of where your money is going.
Take a piece of paper or create an Excel spreadsheet with all your spending categories. If you like to go digital, use a program app like Mint. It will automatically collect and categorize every credit card transaction. All you need to do is to assign things to proper categories.
Divide every expense into categories. At the end of the first month, look at your categories and see how much you spend on each:
After tracking your expenses for a while, you will know how much you spend each month. Then multiply that number by 12 to get a picture of how much money you spend per year.
Here is a simple example (all calculations after taxes):
- Current monthly expenses $5,000
- Current yearly expenses: $5,000 x 12 = $60,000
Future spending is between 70% to 80% of current spending:
- $60,000 x 0.70 = $42,000 per year ($3,500 per month)
- $60,000 x 0.80= $48,000 per year ($4,000 per month)
The calculations will help you to find out how much money you’ll need for expenses in retirement.
If you’re in your 50s and planning to retire early, you’ll need to have enough money saved for another 25 years.
$42,000 x 25 = $1.05 million
$48,000 x 25 = $1.2 million
But if you work longer and retire later, the amount of money you need to save for retirement is much less:
$42,000 x 20 = $840,000
$48,000 x 20 = $960,000
We should remember that after we stop working, we will spend much less money on transportation (no commute), office clothes, and lunches and dinners with colleagues. However, the healthcare expenses might grow with years.
We will spend more money on fun things like travel and hobbies.
But as with many things in life, how much money you need to save depends on your individual financial situation. If you’re able to cut your expenses, you can start saving more money for retirement. Or you can plan on working longer.
Income in retirement
When we retire, we’ll need some level of income to cover our expenses. Most of us will have income coming from at least one or hopefully several sources.
There are several sources of income in retirement:
- Social Security
- Part-time work
- Retirement savings
- Dividends and interests
- Rental income
Do you know how much is your Social Security benefits? If you don’t, it is a good time to look at your Social Security Statement.
Social Security, pension and annuity is considered a guaranteed income. The great thing about guaranteed income that it will keep coming in as long as we live.
Other sources of income are your personal retirement accounts and savings.
If you already have saved a decent amount of money in 401(k) or other retirement accounts like IRA, Roth IRA, you have a good head start on saving for retirement.
If you’re starting from scratch, you want to save as much as possible. Start with saving 10 % or better 20% of your income. Saving even 5% it is better than not saving at all.
Take a piece of paper and calculate all the sources of your retirement income in the spreadsheet as if they started now. Then go to Step 2 calculations and compare them with your expected retirement expenses from the spreadsheet.
If your retirement income is less than the expenses, then you’ll need to adjust your spending. You need to save more or work longer to cover the gap between.
But if your retirement income is greater than your expenses, you’re the lucky one and should start planning for early retirement.
Putting it all together
How much do I need to have saved is the biggest question when preparing for retirement. There are so many kinds of answers from the financial advisers, books and blogs. The truth is nobody can predict the future.
If you want to retire in your 50 you will need to have a nest egg saved much bigger than if you want to retire in your 60. And if you’re waiting to retire at 70, your number will be even smaller.
So, it all depends on your age, your dreams and goals about your future life. Start looking at the numbers. Compare your financial situation based on different retirement age scenario. Find ways to improve your future retirement income and expenses numbers.
Do you know if you have saved enough for retirement? Do you feel prepared for retirement?