According to a study done by the Transamerica Center for Retirement Studies, the youngest generation of workers (GenZers) estimated they'd need $500K to retire comfortably. Millennials, the next group by age, estimated $300K, followed by $500K for GenXers and $750K for the Boomers. So who's got it right?
A reality check
Turns out, all of these numbers fall short and by a wide margin too.
A simple rule of thumb to help you start to estimate your needs in retirement is to assume that you'd need about 75% of your pre-retirement income each year while in retirement. That means, someone retiring at age 65 with a current household income of $50k and planning for 30 years in retirement, would need to save about $1,125,500.
The fact of the matter here is that a few hundred thousand won't last that long. You’ll still need to plan for at least 25-40 years in retirement to be safe, depending on what age you want to retire.
Calculating your own needs
Rules of thumb are helpful starting points to guide us in the right direction, but at the end of the day it'll come down to taking the time to ponder on this to figure out exactly when and with how much you want to retire comfortably.
To help, keep these expense factors in mind:
- Health care costs: According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2021 may need about $300,000 saved (after tax) to cover health care expenses in retirement.
- Housing and living expenses: Per SoFi, in 2021, Americans aged 65 and older spent an average of $4,847 per year on housing-related costs, including property tax, maintenance & repairs and insurance. Utilities, fuel and public services cost an additional $3,743 and miscellaneous costs related to household operations were another $1,219. And renters spent an average of $2,471 per year on their dwellings.
- Food and transportation costs: People over age 65 spend $6,303 annually on food and dining out and an average of $6,618 per year on transportation, which includes buying a car to filling up the gas tank to purchasing a bus pass. For retirees who don't own a car, public transportation costs an average of $441 per year, according to SoFi.
- Account for extras with a buffer. And this really depends on the retirement lifestyle you want. If you want to have $1,000 in discretionary money to spend on the grandkids every month or a boat, you’ll want to account for that. Same for vacations, hobbies, and general amenities you wish to have as a part of your golden years.
💡 Tool tip. If you're just starting this exercise, check out Vanguard's retirement expenses worksheet we found to be simple and easy to use.
📚 Alas, there are a few other ways of thinking about how much you'd need for retirement, such as the 25x or 4% rules of thumb. Check them here: