Here's How Much Money You Really Need to Retire (2024)

Saving for retirement isn't exactly the most exciting thing you can do with your money, but it's certainly very important. Although saving for things like your emergency fund or a house can be more immediate, it's good to keep retirement savings on your mind and to start saving for retirement when you can afford it. We've asked the experts for the answers to some frequently asked questions about retirement planning that can help you get on the right track for a successful retirement.

How much money do I need to retire?

The answer varies from person to person. How much you need depends on what you think your expenses will be to maintain your current quality of life, or to meet other retirement goals such as travel. Many planners say that, on average, you will need 75 percent of your income prior to retirement to maintain your lifestyle. Others recommend that you add up your yearly expenses and then multiply those by 30 (an average retirement) to get an idea of how much you will need. Douglas A. Boneparth, CFP, financial advisor and president of Bone Fide Wealth, LLC, tells Woman’s Day that as retirement is to personal to an individual, getting specific will help you more than general rules of thumb.

"The easiest thing you can do is find any number of retirement calculators online," Boneparth says. There are many calculators available online that can help you chart a course.

Another tip from Boneparth: "Sit down with a certified financial planner and have more robust conversations around it, and make strategies to get there."

When should I start saving for retirement?

The answer to this question is always "now." The earlier you begin, the more you will have saved up for later.

But don't think that you're a lost cause if you haven't started saving yet. "It’s never too late," Boneparth says. "I don’t want people to feel like just because people are in their 40s or 50s that they can’t get to retirement. There’s a plan for you if you really want there to be one."

How much money should I withdraw from my retirement account while I am retired?

While most people spend a lot of time planning on the money they'll put in their retirement savings account, they don't always think about the money they'll take out of it. Once you start taking distributions from your retirement accounts, you run the risk of reducing your principal. In general, it is best to take out no more than 4 to 5 percent of your assets each year. This means that you will need to save up a large enough nest egg that your principal remains largely intact for most of your retirement. Also consider the tax implications of removing money from the account, Boneparth says. If it's pre-tax money that you've put in, you'll have to pay taxes; if it's Roth, you won't. "The right amount that you should take out comes down to retirement planning," Boneparth says. "It shows you how much you need to put in, but it also shows you strategies for taking out."

How do I choose investments for my retirement account?

Investing is essential to good retirement planning. Choosing investments, however, can be difficult for many, especially if you lack investing knowledge. Many people find that index funds work well in their retirement accounts. They are low cost, track an index (so fund management and stock picking are not required), and they generally do well over the long haul (if you have a time frame of 15 to 25 years). There are targeted retirement funds that change your asset allocation automatically to help you reach your target retirement goals as well, but they can have higher costs.

Does Medicare cover all my health care costs in retirement?

Medicare does not cover all health care costs for retirees. Depending on your situation, it might be worth it to continue health care coverage from work for a time, or get what is known as Medicare supplement insurance, which covers expenses that Medicare does not. When engaging in retirement planning, it is also important to understand that Medicare may not cover long-term care needs. It might be necessary to look into long-term care insurance.

When should I draw Social Security?

You should wait as long as possible before you begin drawing Social Security, even if you are eligible. The same is true for withdrawing from your retirement accounts. The longer you can wait, the further the money will go. It is important to note, though, that in the case of tax-advantaged retirement accounts, you are required to take law-mandated minimum distributions by the age of 70-and-a-half.

Always check with a professional financial adviser before making any financial decisions.