How Much Money Do You Need to Retire?

Planning for retirement can be overwhelming, but addressing key questions can pave the way for an independent and fulfilling future. The three most common retirement planning questions we get asked are:

  1. How Much Money Do I Need to Retire Comfortably?

Determining the exact amount needed for a comfortable retirement varies based on individual lifestyles, expenses, and goals. However, several guidelines can assist in setting a target:

  • Assess Your Needs: First, you need to determine your needs, your available resources, your risk tolerance (how much risk you can stomach or need to stomach) in order to reach your goals, and your timeline. It also depends on your lifestyle. Many people think they’ll spend less in retirement, but the reality is they can spend more because they have more free time to travel and participate in activities that they couldn’t do before because of their work schedule. 
  • Beware Inflation: By far the GREATEST risk to your own retirement is INFLATION. The $100 you need today may require $1,000 when it finally comes time for you to leave the workforce. The basis is: you can’t possibly know how much you’ll need to retire using a rule of thumb, you have to evaluate what you have, estimate what you need, and then get the help of a financial advisor to fill in the gaps. 
  1. When Should I Start Taking Social Security Benefits?

Deciding when to begin Social Security benefits is an important decision that impacts your retirement income:

  • Early Benefits (Age 62): You can start receiving benefits as early as age 62, but doing so will permanently reduce your monthly payments by up to 30%, depending on your full retirement age.*
  • Full Retirement Age (FRA): For those born between 1943 and 1954, the FRA is 66; it gradually increases to 67 for those born in 1960 or later. Claiming benefits at your FRA ensures you receive 100% of your entitled benefits.*
  • Delayed Retirement Credits: Delaying benefits beyond your FRA increases your monthly payment by approximately 8% per year until age 70. For example, if your FRA is 66 and you delay benefits until 70, you’d receive a 32% increase in monthly payments.*

Factors to consider when deciding include your health, financial needs, life expectancy, and whether you plan to continue working (or for how long). It’s also important to note that if you continue working while receiving Social Security benefits before reaching your FRA, your benefits may be temporarily reduced based on your earnings. 

There is no hard and fast answer as to when you should begin claiming your benefits. Some people take their benefits early because they believe the Social Security fund will run out of money and won’t be around in the future, while others purposely delay in order to receive the greatest amount available to them.

Then there is the question of whether or not you should claim on your own benefits or that of your spouse or ex-spouse. You’ll want to work with a financial advisor to explore your options so that you are making the best possible decisions for your situation. You can learn more and calculate your potential benefits here. 

*For further reference, please visit the IRS website.

  1. What Are the Best Ways to Save for Retirement?

You have a lot of options when it comes to saving for retirement, and each has its own benefits. Building a robust retirement portfolio often involves utilizing various savings vehicles:

  • Employer-Sponsored Plans (401(k), 403(b)): These plans often come with employer matching contributions, effectively providing free money towards your retirement. Contributions are typically made pre-tax, reducing your taxable income. (IRS 401k Resource ; IRS 403b Resource)
  • Individual Retirement Accounts (IRAs)*: Traditional IRAs offer tax-deferred growth, with contributions potentially being tax-deductible, depending on your income and participation in employer-sponsored plans. Roth IRAs, funded with after-tax dollars, allow for tax-free growth and tax-free withdrawals in retirement. (IRS Resource)
  • Health Savings Accounts (HSAs): If you have a high-deductible health plan, HSAs offer triple tax advantages: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. After age 65, withdrawals for non-medical expenses are taxed as ordinary income, similar to a Traditional IRA.(IRS HSA Resource)
  • Taxable Investment Accounts: While lacking the tax advantages of retirement-specific accounts, these accounts offer flexibility and no contribution limits, allowing for additional savings and investment opportunities. Speak to your financial advisor for information.

*Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at the withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. 

Final Thoughts: Plan for the Retirement You Deserve

Retirement planning is not a one-size-fits-all process. Factors such as your expected retirement age, the desired standard of living, healthcare needs, and investment preferences all play a crucial role in shaping your financial future. Additionally, economic conditions, tax laws, and inflation can impact your savings over time. That’s why working with an experienced financial planner is essential.

At Caviness Wealth Management, we understand that every retiree’s journey is unique. Our team is dedicated to crafting a personalized retirement strategy tailored to your financial situation, risk tolerance, and long-term aspirations. 

Whether you’re just starting to save, nearing retirement, or already retired and looking to optimize your income, we can help you navigate the complexities of retirement planning with confidence.

Contact Caviness Wealth Management to schedule a consultation and take the first step toward a retirement plan designed specifically for you. Schedule a Consultation →

Caviness Wealth is not associated with the Social Security Administration or any other government agency and has made every effort to be as accurate and complete as possible in the creation of this material notwithstanding the fact that they do not warrant or represent at any time that the contents within are accurate due to the rapidly changing nature of government policy and regulation. Clients should seek guidance from the Social Security Administration regarding their particular situation. Social Security payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please visit your local Social Security Administrative office, or visit www.ssa.gov