How Much Money Do You Need for Retirement? Shares the Facts

Released  July 5, 2007
By Megan Greuling

CHARLOTTE, N.C., July 5, 2007 – Regardless of how you plan to spend your retirement – starting a new career, traveling, or golfing the days away – you’ll need savings socked away to fund your activities as well as meet your day-to-day living expenses.

How much is enough? Most experts recommend you will need 70-85 percent of your pre-retirement income during your retirement years. So if you’re making $50,000 a year now, you’ll need at least $35,000 a year in retirement to meet your current lifestyle requirements.

Why not 100 percent? Usually, you can expect your expenses to go down after retirement, assuming your mortgage is paid off and children are out of the house and living independently. Also consider some of the expenses associated with work that will no longer be necessary such as transportation, dry cleaning and lunches out. In addition, Social Security will cover a percentage of your expenses. However, some expenses may increase: health and long-term care, for instance.

Keep in mind that the amount you’ll need in retirement will depend on a number of factors: where you plan to live, lifestyle, the probable length of your retirement – will you want to retire in your fifties or continue working into your seventies? Also, consider your tax commitments, your health and any financial support for your children or grandchildren.

Where will the money come from? Social Security will replace a portion of your income. For instance, the Georgia State University Retirement Income Replacement project (RETIRE), estimates that a single-earner couple making $60,000 a year can expect to have 43 percent of their income replaced by Social Security. What about the rest? Figuring for inflation, that single-earner couple will need a $500,000 investment to generate the additional $21,000 per year they’ll need after Social Security for their 30-40 year retirement.

Here’s a great tip – If your company participates in a 401(k) program, have as much as you can afford deducted from your paycheck. These earnings are tax-deferred, which means you don’t pay the IRS until you withdraw the funds in retirement. Additionally, many companies will match your contributions, which is income above and beyond your salary. Even if your company doesn’t participate in a 401(k), or if you are self-employed, you can set up an Individual Retirement Account (IRA). Consider other investments as well like stocks and bonds, mutual funds and real estate to help finance your retirement.

A good way to stretch your retirement savings is to plan to have your house paid off by the time you retire. This removes a major living expense and also protects an important asset. There are even flexible financing options – such as a reverse mortgage – whereby the lender actually pays you – buying back your house from you, one month at a time.

For additional information about retirement savings, visit the LendingTree Smart Borrower Center:

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