If you’ve ever tried to figure out how much money you’ll need to retire comfortably, you’ve probably heard that 70% to 80% of your current income will do the job.
If you’ve ever tried to figure out how much money you’ll need to retire comfortably, you’ve probably heard that 70% to 80% of your current income will do the job. The idea behind those “guesstimates” is that your income taxes and other expenses are likely to be lower, and you won’t be funding retirement accounts like IRAs and 401(k) plans. You’ll also need to generate less income because part of that 70% to 80% will come from your Social Security benefits.
Unfortunately, that old rule of thumb was based on studies done 2 decades ago. More recent surveys show that upper income earners may actually need from 85% to 90% of their current income to fund their retirement and that Social Security will offer less help to reach that goal.
According to the most recent study by Aon Consulting, if your current income is $150,000, you’ll need to replace about 85% of it in retirement. About one-fourth of that amount will come from Social Security; the rest will have to come from your retirement funds. These figures are estimates; your actual income needs will depend on your individual financial picture, including whether you relocate and how much debt you expect to have when you retire.
The Internet offers a host of sites that you can use to get a more accurate idea of your retirement needs. Just plug “retirement calculator” into Google and you’ll get an extensive list of sites from a range of providers, including Fidelity, T. Rowe Price, and AARP. Remember, though, that the numbers you’ll get from these sites are still estimates. The closer you get to retirement, the more you should think about doing an actual retirement budget with numbers as close to reality as possible.