“How much do I need to retire?” People frequently ask me that question, which I addressed in a previous Kiplinger article, How Much Do You Need for a Comfortable Retirement? In that article, I explained that how much you will need in retirement depends on many factors, including how much you will receive in Social Security benefits, whether you have a pension, how much you need to cover day-to-day expenses, etc.
Many people come to the conversation believing that everyone needs $1 million saved before retiring. Whether that’s true or not also depends on several factors.
Let’s look at an example. John and Jane are married. Both are 62 years old, and they have $1 million saved for retirement. Based on his work history, John’s projected monthly Social Security benefit will be about $3,000, while Jane will receive about $1,500 in monthly benefits due to the spousal benefits rule within Social Security. Neither of them has a pension. (The details in this example have been updated.)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The couple are ready to retire after 40 years of working. They say they need $6,000 in monthly income to live their desired lifestyle in retirement. If that’s the case, they will need to withdraw an additional $1,500 per month from their retirement accounts.
Looking ahead
During our analysis, we also see that John and Jane will likely have an excess amount of retirement savings when they pass away. They may want to consider either spending more money now or putting together a legacy plan indicating where the money should go when they’re gone. They will likely also want to consider other factors — such as future health care or long-term care needs, when deciding how much to take from their accounts each month.
Now, let’s use a similar scenario in which John and Jane say they need $10,000 per month in income. That same $1 million likely won’t stretch as far, and we may have to explore other options for the couple. They may need to work longer, work part-time in retirement, or live on less in retirement to accomplish their goals. When we work with families like John and Jane, we examine all scenarios to determine which options will help them avoid running out of money in their later years.
Investors with more than $1 million saved may want additional strategies to pay less in taxes and mitigate risk within their portfolio. One area we look at is required minimum distributions (RMDs). These are annual withdrawals the IRS says you must take from your qualified retirement accounts when you turn 73 or 75 (depending on your year of birth).
RMDs could push you into a higher tax bracket
Since RMDs are counted as ordinary income, they are taxable and could force you into a higher tax bracket. This, in turn, could result in up to 85% of your Social Security benefits becoming taxable as well. The higher income could also force you to pay higher Medicare premiums. This means diligent savers may end up paying more for medical care in retirement than those who haven’t saved as much (however, just because you pay more doesn’t mean you get more or better care!). We typically start by looking at our client’s total taxable retirement income and deploying strategies to reduce their tax bill.
The key to making these strategies work is to proactively create a plan that combines all aspects of your retirement — income, taxes, health care, and legacy planning — together. Maybe you already have $1 million saved, and you’re wondering if you can retire now. Or maybe you’ve waited to start planning for retirement and want to ensure you’ll have enough. Whatever your scenario, making decisions now can set you up for success later.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Related Content
-
Stock Market Today: Dow Slides 697 Points on Super-Hot Jobs DataWhen the December nonfarm payrolls report hit the tape, there was no question which way stocks would go at Friday's opening bell.
-
Essential Tech Tools for Managing Your Home and Finances While TravelingStay secure and stress-free on the go with the best tech tools for managing your home, bills and security from anywhere.
-
Stock Market Today: Dow Slides 697 Points on Super-Hot Jobs Data
When the December nonfarm payrolls report hit the tape, there was no question which way stocks would go at Friday's opening bell.
-
Blowout December Jobs Report Puts Rate Cuts on Ice: What the Experts Are SayingJobs Report The strongest surge in hiring since March keeps the Fed on hold for now.
-
Constellation Energy Stock Soars on Its $26 Billion Buy. Here's Why Wall Street Likes the DealConstellation Energy is one of the best S&P 500 stocks Friday after the utility said it will buy Calpine in a cash-and-stock deal valued at $26 billion.
-
Why Walgreens Is the Best S&P 500 Stock After EarningsWalgreens stock is soaring Friday after the embattled pharmacy chain reported strong earnings and gave an upbeat outlook.
-
Delta Stock Remains a Strong Buy After EarningsDelta stock is soaring Friday after the air carrier beat earnings expectations and issued a strong outlook. Here's what investors need to know.
-
Late to the Retirement Savings Party? Five Tips for 2025If you did a poor job saving for retirement last year, don't despair. There are ways to build your nest egg in the new year.
-
The Wrong Money Question to Ask After Trump's ElectionIf you're wondering what moves to make with a new president moving into the White House, you're being dangerously shortsighted. Here's what to do instead.
-
An Investing Plan for This Year: Doing Less Can Lead to MoreAchieve more when investing in 2025 by planning to work smarter, not harder. These three strategies can help put you on the right track and keep you there.
