The Cost of a Comfortable Retirement (2024)

May 01, 2023

Retirement is something we all look forward to, whether we plan onspending more time with family and friends, pursuing our passions, orsimply enjoying leisure activities. However, what often gets lost in theplanning process is the cost of retirement. How much money will youneed to maintain your quality of life for the next few decades?

Standard retirement planning rules of thumb

Financial experts have devised various rules of thumb to determine howmuch you need to save for retirement.

One standard piece of advice is to save 10 to 12 times your annual salary1 by the time you retire. So, for example, if your current salary is$120,000 per year, you should have at least $1.2 million saved up bythe time you retire.

This rule of thumb focuses on savings. However, many people find iteasier to think about retirement in terms of income rather than savings.This is because the amount of money you will be able to draw frominvestments and savings accounts depends largely on the performanceof the markets and how much risk you're willing to take with yourportfolio.

In approaching a calculation based on this rule, some financial expertsrecommend replacing 80% of your pre-retirement income.2 In other words, if you make $120,000 per year now, you'll need at least $96,000per year to maintain your lifestyle in retirement. The idea is that youdon't have to replace 100% of your income because you'll be able toeliminate certain expenses in retirement, including saving for retirementand commuting to work.

Whether you look at retirement planning from a savings or incomeperspective, it isn't necessarily a one-size-fits-all equation. Dependingon your current living expenses and desired lifestyle, you may need tosave more or less than these general guidelines recommend.

So let's look at a few essential factors that can help determine howmuch you'll need to support your desired quality of life in retirement.

Social Security

The amount you can expect to receive in Social Security benefits willdepend on earnings during your working years. The maximum monthlybenefit for someone who retires at full retirement age in 2023 is $3,627 per month3 or $43,524 annually. However, this amount will be lower ifyou retire early or higher if you delay claiming Social Security benefitsuntil age 70. Maximum benefits change each year because theygenerally track inflation.4

You can find a personalized estimate of your Social Security retirementbenefits in your Social Security Statement, which you can get online bylogging into your my Social Security5 account. The statement showsyour personalized benefit estimates at multiple ages, depending onwhen you want benefits to start.

Social Security alone likely won't be enough to maintain your currentlifestyle in retirement. For instance, if you earn $120,000 and startclaiming benefits this year at full retirement age, Social Security wouldonly cover about 36% of that amount.

Pension benefits

If you have a defined-benefit pension through work, that pension willguarantee a set level of income for the duration of your retirement. Itmay even be transferable to a surviving spouse after death. Thesepayments are usually based on your salary and years of service.

When considering how to factor in any defined-benefit pensions youmay receive, here are a few key points to keep in mind:

• When will you be eligible for a pension?
• How much will your monthly or annual payments be?
• Are survivor benefits available?

Consult your pension plan documents or your company's benefitsdepartment to get answers to these questions. This will help youdetermine how much of your retirement income could come from apension and how much you'll need from other sources.

Housing

Housing is another major factor in your retirement costs. If you own yourhome outright, you can avoid the costs associated with monthlymortgage payments or rising rent costs. This gives you more financialflexibility in retirement, allowing you to devote more money to leisureactivities or travel.

However, if you rent or have a mortgage, those monthly payments couldbe a major factor in determining how much you'll need to save forretirement.

It's also helpful to consider whether you intend to stay in your currenthome, downsize, or move somewhere more fitting for your desiredretirement lifestyle.

Family needs and expectations

When planning for retirement, also consider how you want to provide forfuture generations, including your grandchildren or heirs.

Do you want to be able to help fund college tuition for yourgrandchildren or leave a financial legacy to heirs? You can reach thesegoals through a variety of methods, including 529 plans, trusts,annuities, and life insurance. Your goals and the ways you go aboutreaching them will vary, but it's a good idea to consider them whencalculating the cost of your retirement.

Medical and long-term care expenses

Medical expenses can be one of the biggest costs that retirees face. Infact, the average 65-year-old couple retiring today can expect to spend$315,000 on medical costs6 over their retirement years. While Medicarecovers some medical expenses, it excludes many costs, including long-term care, hearing aids, and dental care.7

These expenses can quickly deplete retirement savings if they're notadequately planned for, so you may want to consider purchasing long-term care insurance or setting aside money in a dedicated health savings account to help cover these expenses.

The price of a comfortable retirement depends on a variety of factorsand is about more than hitting some arbitrary retirement savingsnumber. If you need help figuring out how much income you'll need andwhere this income will come from, contact your Synovusfinancial advisor. Wecan help you plan a comfortable retirement so you can enjoy yourgolden years without worrying about money.

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Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circ*mstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

1. Rick Munster, “How Much Money Do I Need to Retire?" MoneyFit,published December 8, 2022, accessed January 12, 2023. Back
2. John Waggoner, “How Much Money Do You Need to Retire?" AARP,updated January 6, 2023, accessed January 12, 2023. Back
3. Social Security Administration, “What Is the Maximum Social Security Retirement Benefit Payable?" accessed January 12, 2023. Back
4. Social Security Administration, “Cost-of-Living Adjustment (COLA) Information for 2023," accessed January 12, 2023. Back
5. Social Security Administration, “Social Security Statement," accessedJanuary 12, 2023. Back
6. Maurie Backman, “Average couple will spend over $300,000 on healthcare after retirement," USA Today, updated May 19, 2022, accessedJanuary 12, 2023. Back
7. Medicare.gov, “What's not covered by Part A & Part B?" accessedJanuary 12, 2023. Back