T. Rowe Price Personal Investor - How to Determine the Amount of Income You Will Need at Retirement (2024)

FAQs

How do I figure out how much I need to retire? ›

One rule of thumb is that you'll need 70% of your annual pre-retirement income to live comfortably. That might be enough if you've paid off your mortgage and you're in excellent health when you retire.

After analyzing many scenarios, we found that 75% is a good starting point to consider for your income replacement rate. This means that if you make $100,000 shortly before retirement, you can start to plan using the ballpark expectation that you'll need about $75,000 a year to live on in retirement.

You should consider saving 10 - 15% of your income for retirement. Sound daunting? Don't worry: your employer match, if you have one, counts. If you save 5% of your income and your boss matches another 5%, you've accomplished a 10% savings rate.

This is sometimes called “replacement income.” So if you earn $75,000 a year now, you'll need at least $60,000 a year to maintain your lifestyle. Multiply that amount by your life expectancy after retirement. Once you know your goal, it's time to figure out the amount to put away each month.

The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.

Safe Withdrawal Rate

Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.

If your pay at retirement will be $100,000, your benefits will start at $2,026 each month, which equals $24,315 per year. And if your pay at retirement will be $125,000, your monthly benefits at the outset will be $2,407 for $28,889 yearly.

We found that 15% of income per year (including any employer contributions) is an appropriate savings level for many people, but we recommend that higher earners aim beyond 15%. So to answer the question, we believe having one to one-and-a-half times your income saved for retirement by age 35 is a reasonable target.

According to the federal Bureau of Labor Statistics, Americans who are 65 and older spent about $52,141 in 2022. So the average US resident needs an average monthly retirement income of about $4,3451. Of course, the income you need depends on a number of factors.

What is the 4 rule for retirement? ›

The 4% rule limits annual withdrawals from your retirement accounts to 4% of the total balance in your first year of retirement. That means if you retire with $1 million saved, you'd take out $40,000. According to the rule, this amount is safe enough that you won't risk running out of money during a 30-year retirement.

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

That means that even if you're not one of those lucky few who have $1 million or more socked away, you can still retire well, so long as you keep your monthly budget under $3,000 a month.

It might surprise you to know you can make $250,000 last for decades in retirement. While you'll need a detailed plan and sufficient Social Security income, it's possible to leave the workforce with this modest amount.

Generally speaking, you can retire at 60 with $500,000, but you may not like how much income you have or it may not be enough for your needs. However, some people can retire on less.

Yes, it is possible to retire comfortably on $500k. This amount allows for an annual withdrawal of $20,000 from the age of 60 to 85, covering 25 years. If $20,000 a year, or $1,667 a month, meets your lifestyle needs, then $500k is enough for your retirement.