Do you know your magic retirement number? This is the amount of money you need to retire – and it’s different for everyone. Let’s explore how to calculate your number, how it compares to the rest of the country’s preparedness for retirement, and why it’s so important to have an income plan.

Factors to Consider

Before we look at any retirement numbers, keep in mind that retirement is ultimately about converting your savings into a reliable income stream. While having a large sum of money can offer peace of mind, it matters more how much those savings are going to pay you every month. Properly planning for income generation can allow you to sustain your desired lifestyle throughout retirement, covering everything from everyday expenses to trips you’ve always wanted to take.

Another critical consideration is longevity. We’re living longer than ever before, meaning if you retire at 65, your retirement could last 30 or more years, depending on your state of health. So, whatever your magic number is, it should be based on how much monthly income you’ll need to comfortably support you well into your 90s.

According to a Northwestern Mutual survey of more than 4,500 adults, it takes $1.46 million to retire comfortably in 2024. Compared to $1.27 million in 2023, it’s clear that the cost of living is on the rise. If you plan to live another 30 years, you’ll need to give yourself raises to keep up with inflation. For example, if you’re 65 and need $10,000 per month to live comfortably today, you may need to plan for around $25,000 per month by age 95 to keep up a similar lifestyle.

What is Your Number?

Let’s get back to that essential question, what is your number? The amount you need to retire will depend on multiple variables, including your lifestyle goals, the age you plan to retire, your life expectancy, and so on. It’s tempting to think that a specific dollar amount in savings will guarantee a secure retirement, but that’s only part of the story.

For instance, even with a smaller pile of money, there are still ways to generate more income off it than say someone with a larger nest egg who isn’t investing it right or paying attention to taxes. With a retirement income plan in place, you can begin to determine your number. The next step is to convert this monthly income goal into a savings goal.

The Retirement Income Crisis

As we’re seeing today, many Americans are not on track to meet their retirement savings goals. According to the Federal Reserve, households aged 65-74 had an average savings of $609,000 in 2022. When compared to the over $1 million that Northwestern Mutual suggests is necessary for a comfortable retirement, it’s clear that many are falling short.

Additionally, only about 2% of Fidelity 401(k) investors have balances of $1 million or more. This underscores a growing wealth gap: A significant portion of the population is not financially prepared for retirement and is even at risk of outliving their savings. Simply put, we’re facing a nationwide retirement income crisis, making it now more important than ever to take charge of your financial future.

The Bottom Line: You’re in Control

Given the changing retirement landscape, you must take personal responsibility for your retirement savings. The days of relying solely on a pension and Social Security are long gone. In fact, pensions have become increasingly scarce, and Social Security benefits are no longer adequate for many retirees. It’s essential to think about what you can do to ensure enough income to last as long as you do.

It’s understandable to feel overwhelmed by the magnitude of this task, but with the proper financial planning, you can set yourself up for a successful and fulfilling retirement. The key is to start assessing your situation early and be flexible with your goals as life’s unexpected challenges come your way.

3 Steps to Take Right Now

So, how does all this apply to you? Even if you feel prepared, you want to make sure you’re doing everything you can to get the most out of what you’ve earned, so you can enjoy your retirement years to the fullest. If you’re wondering where to start, here are three critical steps to take right now:

1. Inventory your current savings. Start by taking stock of all your current savings and investments. This includes any 401(k)s, IRAs, brokerage accounts, pensions, and other assets. Identifying where you are is the first step in creating a plan that will lead you to where you want to be.
2. Decide how much monthly income you want. Without the constraints of what you’ve saved, consider how much income you want in retirement. Think about your desired lifestyle and what you want to accomplish. Do you want to travel? What hobbies do you want to pursue? Where do you see yourself living? The answer to these questions will dictate how much you’ll need in monthly income and, by extension, how much you need to save.
3. Determine what you can change. If you discover you’re falling short of your retirement income goals, consider working with a financial advisor. An advisor can help you evaluate your current savings, adjust your investment strategy, and create a plan to bridge the gap.

While each step is important, we believe the second step is most significant to your overall retirement strategy. Retirement can be an exciting and rewarding chapter in your life, so you want to figure out early what kind of lifestyle you want to lead and how much you’ll need to make it happen. And if you discover, with the wisdom and guidance of your financial advisor, that you’re falling short of your desired monthly income, you have options to get back on track.

While it may not be ideal, you could choose to work longer to build those savings up. You could also change your investment strategy or purchase certain investment products that promise a guaranteed income. Talking through your options with your partner or spouse, or with a financial advisor, is a good way to determine what is most important to you so you can make the proper adjustments.

Get a Realistic Picture of Your Situation

We understand that the financial planning process can be overwhelming at times, but we don’t want you to get discouraged. Once you take an inventory of your savings, you can set realistic expectations to achieve your goals. And if those goals need to be adjusted, that’s okay too. Many retirees end up modifying their objectives as they move through retirement, but it’s better to start with a clear and honest picture of your finances.

Keeping yourself in the dark can be isolating. We encourage you to do what most people are too afraid to – tell yourself the truth. Instead of feeling hopeless and unsure, you can feel empowered to confront important financial decisions head-on.

The earlier you start to think about saving for the next 30 or so years, the better equipped you’ll be to handle life’s uncertainties and enjoy a stress-free retirement. Remember, you are unique, and your situation is unlike anyone else’s.

At Johnson Brunetti, we can help you navigate your retirement planning with confidence. Our financial advisors have the wisdom and experience of guiding thousands of individuals and families throughout the journey of retirement. Together, we can make sure that your retirement goals are not just a dream, but a reality.