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Saving Is Just the Start

Sep 09, 2020 5 min read Stephanie Taylor Christensen

Key takeaways

  • Aim to replace at least 70% of your pre-retirement income.
  • Factor unknowns like health into your income needs.
  • The retirement lifestyle you want will affect the income you'll need.


Let’s say you can contribute to your retirement account with each paycheck, which you’ve been doing diligently. And you check your progress each year by plugging your growing balance into an online retirement calculator. Given that a quarter of American families have no retirement savings Opens in new window at all, you're on the right track to a financially stable future.

Yet two major questions remain: How much income will it take to fund each month of your retirement? And how will you make sure that your money lasts your entire life?



They’re legitimate and complex questions, with answers driven by a host of unknowns—how long you'll live, what health conditions (and costs) you may face, and how long you're able (and willing) to work. Your monthly income in retirement also depends on your personal spending and saving habits, current and future income, and lifestyle.

These questions can give you a better sense of how much income you may need to live the retirement you envision.


What does retirement mean to you?

Do you associate post-career life with financial freedom, professional flexibility, time with friends and family, the ability to travel, or the means to pursue new hobbies, activities and interests?

You can better gauge how much retirement income you’ll need when you know what you want your retirement to look like. The more detailed your vision, the more accurately you can project your future monthly budget.


Will you work?

Financial professionals often say retirees should aim to replace at least 70% of their final working income for each year of their expected retirement.1 This income can come from a variety of sources, including Social Security, your retirement and pension plans, personal savings and elsewhere.

Continuing to work—if you can—is a potential revenue stream. If you work as a consultant, freelancer, business owner, contractor or even as a part-time employee, you may not need to rely as much on your retirement savings to fund your monthly expenses.

Also, certain types of insurance or annuity products can provide ongoing monthly income and help guarantee that your retirement needs are met.

Please consult your tax and legal advisors for advice pertaining to your circumstances.


Where will you live?

Costs of living vary by state, where property, income and sales taxes can also make a big difference to your income. One recent study even found that retirees generally clear that 70% income hurdle in only three of the 50 states. If you plan to relocate for—or during—retirement, consider those factors as well.


Will your lifestyle become more or less expensive?

Your retirement lifestyle directly correlates to how much income you'll need in order to ensure you don't outlive your savings. If you'll travel in retirement, for example, you may spend more on flights and hotels—but that may give you an opportunity to downsize the size and cost of your home.

Something that’s harder to predict is the cost of future medical care. You can look to your current health, and any health issues that have presented in your immediate family, for clues. But the truth is, no one knows what tomorrow will bring in terms of your health or of those you love.


Do you expect to receive one-time income?

Along with your ongoing income and expenses, consider any additional income you expect to receive. This might be anything from an inheritance to proceeds from the sale of a company or investment property.

While these won’t provide you with ongoing revenue (and no inheritance is guaranteed until it comes to you), you might be able to turn one-time windfalls into steady income by using the cash to buy an annuity. This could supplement your other income or help you manage future health care costs.


What debts can you eliminate now?

If you eliminate as much debt as possible before retirement, you may need less income in retirement. Paying off credit card balances (consider the highest interest-rate cards first and work your way down), auto loans and student loans can help reduce your monthly expenses.

Once those are done, start tackling your mortgage. If you’re married, your spouse dies and your income decreases, the costs of your home loan can become an unintended financial burden that erodes retirement income far more rapidly than you expect.

The Center for Retirement Research at Boston College offers an interactive calculator Opens in new window that lets you see the financial impact spending adjustments can have on your retirement income planning.


How will your investments support your income?

These days it’s reasonable to need enough income to fund a retirement that lasts 30 years or more. (Social Security’s Life Expectancy Calendar can offer Opens in new window you a clue to your likely longevity.) Anticipating such a long life raises a challenge to some of the conventional investing wisdom for retirement planning. For example, is shifting from riskier stock investments toward lower-risk bonds as retirement nears the right move for you? Should other options be part of your planning process? Consider how your retirement income needs coincide with your investment strategy.


What you can do next

Thriving in retirement is about having a dependable lifetime income. Take the time now to reflect on your situation and goals. Determine where you are—and what adjustments you may need or want to make—as you look toward funding your life in retirement. Ensuring that your income lasts your whole life is the biggest challenge, with all the unknowns—positive and negative—your future holds.


1 Jill Cornfield, "Bankrate study: Seniors’ incomes in 47 states don’t go far enough," Bankrate.com, May 23, 2016


Stephanie Taylor Christensen is a former financial services marketer turned freelance writer with more than a decade of experience writing about personal finance and business topics for financial institutions, private firms, and the national media.

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