Planning for Retirement: How Much Savings Do You Really Need?

Retirement Planning

You can plan for retirement by ensuring you have enough income and savings to cover your costs after you stop working. You might need to support yourself financially for several decades with your savings, and dividends and interest payments from your investment portfolio. 

Of course, living expenses for retirees vary by state, and the amount you need depends on your expectations and lifestyle plans. The American Association of Retired People (AARP) suggests that you need 80% of your pre-retirement income to maintain your lifestyle after you stop getting paychecks. 

You can take steps to maximize your retirement income and minimize expenses so that you can enjoy your post-career years without stressing about finances. Here’s a look at the factors affecting the amount you need to save for retirement and financial strategies and tools to help you prepare.  

Estimating Your Retirement Expenses

Your retirement expenses depend on several different factors. You need to consider each of them when calculating how much you need to save. Understanding the different expense categories can also be useful in finding areas where you can cut your costs. 

For example, you might not be able to cut healthcare expenses, such as necessary treatments and medications. However, you can make changes to your lifestyle that will allow you to keep more money in the bank each month. 

Healthcare Costs in Retirement

Some healthcare costs are non-negotiable. You will have to make co-pays or meet deductibles even with health insurance. These expenses are necessary because you can’t enjoy your retirement without good health. 

Medicare and supplemental insurance can cover many medical costs. However, you or your loved ones may struggle to pay if you need additional care, such as an assisted living facility. Assisted living costs can be between $50,000 and $115,000 per year, depending on the location and type of care you need. These costs can significantly add to your retirement expenses. 

You should include both regular medical expenses and assisted living costs in your calculations for retirement. 

Social Security and Pensions

Social Security is a government program that pays retirees from a pool of money collected as taxes from everyone who earns income in the country. The amount you get varies depending on when you retire, with current ranges between $2,710 and $4,873 monthly. 

Pensions are created by employers, who may contribute to them alongside employees. You can draw this money after retirement in two ways. It can either be a lump sum or regular payments distributed monthly or annually. 

While these payments may or may not be enough to fund your lifestyle in retirement, they can help reduce the amount of interest or dividends you need.  

Life Expectancy and Savings Longevity

U.S. life expectancy is 73.5 years for men and 79.3 for women. According to Gallup, the average retirement age in 2022 was 61. If you plan with these averages in mind, you need 12 to 18 years of savings. 

However, the current life expectancies are affected by COVID-19 and the drug overdose epidemic. In general, healthy people are living longer, aided by medical advances and treatments. 

You may need funds for three or four decades of post-retirement living. You should plan for a longer retirement to avoid running out of money. 

Lifestyle

You should also consider the lifestyle you want to have after retirement. If you plan to spend your retirement traveling, you need to figure out how to pay for your vacations. However, if you prefer to remain at home and enjoy a quiet lifestyle, you might be able to plan for a more modest budget. 

Most retirees will choose a balanced lifestyle with a budget for occasional trips, restaurants and entertainment, and quiet time at home. But, whatever your planned lifestyle, you should calculate the average cost and see how many years you can maintain it based on your expected retirement income. 

You may need to make lifestyle adjustments to account for any differences between your expected budget and your retirement funds. 

Preparing for the Unexpected

Unexpected expenses can arise. Even if you plan for assisted living, you might be surprised by other events. Changes to your living situation or unexpected market swings may affect your retirement portfolio. 

Sometimes, you might simply change plans. For example, you could choose to move to help care for grandchildren or get ongoing medical treatment from a specialist.  

It is good to plan for the unexpected. Keep a portion of your savings or investments for emergencies or major changes to your plans. 

Investment and Income Strategies for Retirement

Investment earnings will play a critical role in your retirement. You can earn dividends and interest from investments and use these earnings for living expenses. If you use this money to pay for your living expenses, your investments and savings will remain intact indefinitely. 

Living completely on investment earnings may not be practical. But, these options can supplement your retirement savings and help you enjoy the lifestyle you want. 

Here are five strategies for managing investments and income during retirement. 

401(k)s

A 401(K) is a pension account you get through your employer. You can draw from this account after retirement to supplement Social Security and investment returns. 

401(k) accounts also offer tax advantages. Contributions aren’t taxed until you withdraw them. However, there is a limit to how much you can deposit in the account annually. The current maximum is $23,000 per year, according to the IRS. If you began contributing as much as possible annually (up to the maximum) early in your career, you would have a significant amount saved by the time you retire. 

Individual Retirement Accounts

Individual retirement accounts (IRAs) have lower limits than 401(k). The IRS says you may currently add $7,000 per year to these accounts. Unlike 401(k) accounts, you can open IRAs without an employer through a regular bank or stock brokerage. 

IRAs have the same tax advantages as 401(k)s. However, deposits to specialized Roth IRAs are taxed upfront, but you do not have to pay taxes on the money you withdraw after retirement. This can help lower your tax burden and allow you to keep more of your retirement income. 

Health Savings Accounts

A health savings account (HSA) has tax advantages that are similar to retirement accounts. Contributions aren’t taxed, and you can use the money for qualified health expenses. This type of account can be useful for paying for unexpected healthcare bills or covering treatment or prescription costs. 

You can also invest the money in your HSA to increase the amount in the account even if you do not make additional contributions. 

Interest and Dividends

You can invest funds in a 401(k), IRA, or HSA. But, you can also have regular investment portfolios that produce dividends, interest, and capital returns. 

Savings accounts and certificates of deposit (CDs) can provide modest but low-risk interest payments. Some managed funds or bonds offer similar returns. And, you can collect quarterly dividends on stock holdings. 

You should properly diversify your investments to avoid losing value during unexpected market downturns. 

Real Estate and Retirement Income

There are two ways to add to your retirement fund with property. The first is to sell your home or other real estate holdings. You can then either downsize your home or opt to use some of your retirement budget on rent. 

The second option is to get a property and rent it out to tenants. You can use the rental income to supplement your other retirement accounts. Like securities investments, real estate ownership comes with risk. You will need to pay attention to the property markets and account for taxes. 

Minimizing Taxes on Retirement Income

You will have to pay income tax on money withdrawn from pension funds like IRAs and 401(K)s. The only exception is a Roth IRA. You can maximize deposits into this account to lower your overall tax bill in retirement. 

You can also structure your pension withdrawals so that you remain in a lower-income tax bracket. This will reduce your tax burden. 

Stock Loans: A Strategic Retirement Tool

Stock loans provide a unique option for getting extra capital or covering unexpected expenses during retirement. 

With a stock loan, you borrow money using your stock holdings as collateral. This qualifies you for a lower interest rate while not putting other assets, such as your house or car, at risk. 

Download the Free Stock Loan Calculator

Your portfolio’s value can be unlocked even if you don’t sell a single share in the open market.

If you haven’t checked it out already, here is a free stock loan calculator to help you size out a loan for your shares.

Simply enter a symbol and the number of shares you own, and you’ll see a potential loan amount that we can fund quickly.

Download the free Stock Loan Calculator now

Advantages of Using Stock Loans in Retirement Planning

There are several important advantages to using this strategy. Used correctly, stock loans can help you enjoy these benefits.

  • You retain ownership of your stocks. After you pay off the loan, you can continue to hold your stocks, collect dividends, and sell them to get a profit. 
  • You don’t have to pay capital gains tax. If you sell your stocks, you might have to pay capital gains tax. In fact, some stock loans have tax-deductible interest payments. 
  • You don’t have to undergo a credit check. Most lenders will lend based on the value of your portfolio regardless of your credit history. This also means defaults won’t hurt your credit score.

Finally, stock loans are non-recourse loans. This means the lender can liquidate the stocks if you don’t pay, but they cannot pursue additional payment. 

How To Secure a Stock Loan

You can start the process by applying for a stock loan. The lender will assess your stocks or portfolio. They will typically offer you 50% of the value of your portfolio, but the overall loan amount can range from 40% to 60%. 

Download the Free Stock Loan Calculator

Your portfolio’s value can be unlocked even if you don’t sell a single share in the open market.

If you haven’t checked it out already, here is a free stock loan calculator to help you size out a loan for your shares.

Simply enter a symbol and the number of shares you own, and you’ll see a potential loan amount that we can fund quickly.

Download the free Stock Loan Calculator now

Because the process doesn’t require a lengthy credit check or additional documents, you receive funding relatively quickly. 

A stock loan calculator can help you figure out the details of your loan amount and terms before you apply. 

With careful planning, you can ensure you have enough saved for retirement. A combination of investment and money management strategies will help you maintain your lifestyle after you stop working. The right approach can also provide you with options should you need to cover unexpected expenses.


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