How much monthly retirement income do I need?

A person in their working years often balances trying to cover day-to-day expenses while also building savings for the future. But even with proper planning, it can be stressful when retirement arrives and you’re wondering if you have enough money to last as long as you do. To help you be better prepared for retirement and estimate your personal income needs, here are some basic principles around retirement income and ways to fill gaps if necessary.

How much money should I save for retirement?

Since every person has unique financial goals and circumstances, there is no one dollar amount for how much should be saved for retirement. Finding this target amount often depends on place of residence, lifestyle preferences, health care needs, and planned activities. In general, it’s common to aim to replace around 70-80% of pre-retirement income to maintain a similar standard of living, but this number can be lower or higher based on your personal situation.

Consider starting by 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. To simplify the process, consider meeting with a financial professional to help review your finances and determine an estimate that makes sense for you.

How do I calculate retirement income needs?

To determine personal income needs for retirement, several steps can help you pinpoint 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 can include housing, utilities, food, transportation, healthcare, entertainment, and any 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.

Estimate retirement duration

Based on the age you expect to retire, estimate how many years that income will be required.

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?

Plan for unexpected expenses

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

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.

What are typical retirement expenses?

To help determine what might be an adequate amount of income for retirement, picture life as a retiree, including where you will be and what you plan to be doing. To guide your brainstorming, here are some categories of common retirement expenses.

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 the typical monthly retirement income?

For people aged 65 and over, they spent around $57,818 annually in 2022, according to the Bureau of Labor Statistics. This amount breaks down to approximately $4,818 per month. Remember, since each person’s needs and goals are different, it’s important to follow your own personal checklist and plan ahead to help determine how much income may be required before entering retirement.

Having enough income for retirement is finding the right balance between how much is saved and how much is spent, so 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 increase my income after retirement?

If a large difference is found after adding up the amounts in the retirement income column and the expenses column, changes may be required, like finding a way to bring in additional funds. This could include working part-time or generating passive income through saving strategies or investments. 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.

Planning for retirement can feel overwhelming, but with the help of a financial professional, you can ask questions, discuss any concerns, and create a financial plan around your income needs that will hopefully give you greater peace of mind about the future.

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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