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How Much Retirement Income will I Need?

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  • Written By: Brendan McGuigan
  • Edited By: Bronwyn Harris
  • Last Modified Date: 05 December 2016
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Determining your retirement income can be a stressful exercise, especially when the economy is troubled and many investments seem questionable. The issue of how much retirement income you need to survive is a difficult one, and ultimately is something only you can decide, but a few simple rules of thumb can help you arrive at some general numbers. Once you know how much money you need to be making each month, you can calculate how much money you need to put aside to have a steady income to survive off of. With the market uncertain, it is a good idea to bank a bit more money than is absolutely necessary, to make sure you’re never in a situation where the money runs out late in life.

First of all, it’s important to recognize that while Social Security and company pensions may once have supported people after they retired, these days are largely over. And unless things change substantially, they are unlikely to come again. This means that you will need to count on earning all of your necessary retirement income on your own, through your investments. If such social safety nets to reappear, you will simply be in an even stronger position, and if they do not, you will still be able to sustain yourself.

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One thing you’ll want to ask yourself if whether you plan on retiring completely, or if you plan on continuing to work a bit. The entire concept of retirement is actually quite recent, originating in the Great Depression, when people were trying to cycle older, less productive citizens out of the work force, to free up room for younger, largely unemployed workers. In the modern day, it has again become quite common for people to work their entire lives, often voluntarily. Many people actually retire from their main career, and then find a secondary income through a new career, often something they had wanted to pursue in their life, but never had. If you have this sort of secondary retirement income, the amount of money you need to save up to retire may be quite a bit less.

To calculate how much retirement income you’ll need to survive, you’ll need to look at your monthly costs. If you own your own property, this will likely include insurance costs, medical expenses, travel, food, transportation, and repair. Later in life, you may also need to figure in the cost of some sort of assisted living personnel. If you don’t own your own house, you’ll need to figure in rents, as well, and calculate how rents might increase over the course of your life.

You’ll also need to look at how long your life expectancy is, and there are various charts and actuarial tables that can help you determine a likely age. It is also a good idea to add a few years buffer to this age, so that you don’t find yourself in your final years with no reserve funds. Taking your calculated annual expenses and multiplying them by the amount of years between retirement and your projected life expectancy will give you a ballpark figure out what your total retirement income will need to be.

From this, you can then calculate how much money you will need to earn each month, and from there you can determine how much money you will need to have invested to have a steady income. If you have the finances, it is best to be able to live minimally off of your interest alone, as this will ensure you always have finances, no matter how long you live. And although calculating all this can seem a bit daunting, as a simple solution most young people find that if they can save up about 15% of their current livable income, they will likely have enough of a nest egg saved by the time they are ready to retire.

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