Experts: This Is How Much You Should Have in Savings If You’re Retiring at Age 65

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As the golden years approach, one question looms large in the minds of many: “How much should I have in savings when I retire at age 65?” This age is significant, not only because it marks the traditional retirement age for many individuals, but also because it’s the age at which you become eligible for Medicare, the United States’ government-sponsored health insurance program for seniors. 

Planning for retirement is a multifaceted endeavor, and understanding the financial aspects is crucial. In this article, we will explore the factors that determine how much you should have in savings as you approach your 65th birthday, ensuring you’re well-prepared for both your healthcare needs and your overall retirement lifestyle. Whether you’re counting down the days or still have a few years to go, this guide will help you navigate the path to financial security.

Things Have Changed

How much should you save to retire comfortably? “For decades, the magic number seemed to hover around the one million dollars mark,” said Brian Goodfriend of Goodfriend Health Insurance Advisors, who is well-versed in both insurance and financial planning. “Financial experts and retirees alike believed that with a cool million in the bank, one could lead a comfortable post-retirement life, drawing from the interest and returns without depleting the principal amount.” 

Goodfriend is referring to something called the 4% rule. It used to be a simple way to estimate how much money you’d need for a comfortable retirement. For example, if you had $1 million saved up, you could plan to spend $40,000 per year. However, because of factors like rising prices and changes in the economy, this rule isn’t as dependable as it once was. Figuring out the exact amount you need for a comfortable retirement is now more complex.

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The New Retirement Benchmark

Goodfriend proposed a more substantial savings goal: $1.5 million. With this amount, following the same 4% rule, retirees can comfortably withdraw an annual income of $60,000. Goodfriend said this additional $20,000 can make a significant impact. It’s a cushion against unexpected expenses and it also enhances one’s overall quality of life during retirement. It essentially acts as a financial safety net, providing retirees with greater peace of mind.

But how did Goodfriend arrive at this new target? He said it’s not an arbitrary increase but a response to the evolving economic landscape. Over the past few decades, there have been shifts in interest rates, fluctuations in the job market and, most notably, the steady rise of inflation. The value of a dollar today isn’t the same as it was 20 or even 10 years ago. By adjusting the retirement savings goal to $1.5 million, we’re taking these changes into account, ensuring that retirees have a better chance of preserving their purchasing power and financial security in the face of inflation and market volatility.

Where You Live Matters

Goodfriend added that this amount is based on national averages. The cost of living in any particular area of the U.S. can impact whether this amount should be higher or lower than the average recommendation.

“As the cost of living varies greatly from cities across America, it’s important to take into account how much your monthly living expenses cost as well as any budgeting you want to plan for future goals,” said Jordan Mangaliman, the CEO of GoldLine Financial Services. “Once you have a solid grasp of what income amount you need per month to live comfortably in retirement, you can then plan your finances accordingly.”

Of course, it’s important to take into account inflation and how your cost of living may increase over time.

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Your Marital Status Also Matters

Goodfriend emphasized the advantage that married couples often enjoy when it comes to pooling their financial resources. Typically, both partners have contributed to Social Security throughout their working lives, which means that upon retirement, they can anticipate receiving two separate Social Security checks. This dual income can substantially enhance the financial stability of a couple, enabling them to lead a more comfortable lifestyle together.

However, Goodfriend shared that it’s good to remember that double income can sometimes create a false sense of financial security. For example, when one spouse passes away, the surviving partner will no longer receive both Social Security checks. While the surviving spouse is entitled to the larger of the two checks, the overall household income still experiences a reduction. For instance, if one spouse received $2,500 per month, and the other received $2,000, upon the passing of one partner, the surviving spouse would continue to receive only $2,500, not the combined $4,500 they were previously receiving. This reduction can have a significant financial impact, particularly if the couple had heavily relied on their combined Social Security income.

Goodfriend also said that it’s a good idea to keep in mind that fixed costs such as utilities, property taxes, home maintenance and car insurance don’t halve themselves because one partner is no longer there, so it’s important to plan accordingly.

“Given these dynamics, it’s essential for couples to plan their retirement finances with the understanding that their income might reduce in the future,” Goodfriend said. “This might mean setting aside a larger emergency fund, investing in income-generating assets, or even purchasing additional insurance products to bridge the income gap.”

Retirement-Related Expenses

As you step into retirement, a new set of financial responsibilities may emerge, including healthcare, travel, leisure pursuits, mortgage payments and home maintenance, as highlighted by Michelle Delker, a CFO and CPA at The William Stanley Group. It’s crucial to ensure that your savings are sufficiently robust to cover these expenses without causing undue financial stress.

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Safeguarding What You Have

Safeguarding your nest egg from market volatility is crucial. Goodfriend offered insights into safer investment options tailored for retirement income. Real estate and rental income provide a stable investment option, with the potential for property value appreciation and consistent rental income, offering a reliable hedge against inflation. Multifamily structures with professional property management can yield substantial rental income without the day-to-day management hassles. On the other hand, fixed annuities guarantee steady, predictable growth without market risk, while equity-indexed annuities offer potential market-related gains while protecting your principal investment from losses. These strategies provide retirees with a diversified toolkit to navigate the landscape of retirement investments.

Proactive Planning for All

Goodfriend emphasized the significance of proactive financial planning, applicable to both younger individuals and those approaching retirement. 

For Young Investors: Equity-indexed life insurance is a great option because it offers both protection against market downturns and potential growth during market upswings. This investment, when combined with a diversified portfolio, lays a solid foundation for retirement. It also serves as a financial safety net for your spouse and children through its life insurance component. Remember that starting financial planning early is a must, and beginning this process sooner reaps the rewards of compound interest and lower insurance premiums.

For Those Nearing Retirement: It’s never too late to make adjustments. Reevaluate your expenses, identify areas where cutbacks are feasible, and contemplate extending your working years to strengthen your savings. Prioritize safeguarding your investments by favoring more stable vehicles and exploring supplementary income sources like part-time employment or consultancy, as suggested by Goodfriend.

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Regardless of your age or current financial circumstances, making informed decisions and maintaining consistent savings are essential. Stay well-informed, seek guidance from financial experts and ensure your strategies align with your long-term aspirations. With thoughtful planning, retirement can be a phase characterized by comfort and contentment.

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