If you've been proactively planning for retirement, you're no doubt aware that your golden years aren't going to fund themselves. Rather, you'll need a healthy amount of savings to cover the bills later in life, even if you're expecting a pretty sizable series of payments from Social Security.
Now you'll see different estimates out there as to how much money it takes to retire comfortably, and the truth is that those numbers are somewhat irrelevant for one big reason: They're not personalized. The amount of income you'll need to fund your golden years will depend on a number of factors, including where you live and what sort of lifestyle you plan to uphold. But before you get too set on your personal retirement savings goal, there's one factor that should prompt you to strive for an even higher number: your health.
How many years of retirement income will you need?
You might assume that if your health is poor, you'll need additional savings to pay for your healthcare expenses during retirement. The truth is that saving extra for that purpose isn't a bad idea. But, actually, you may wind up needing even more income if your health is great.
The reason? The better your health going into retirement, the longer you're likely to live. And the more years you live, the more money you'll need to pay your expenses.
The Social Security Administration estimates that the average 65-year-old man today will live until age 84, while the average 65-year-old woman will live until 86 1/2. But roughly one in three 65-year-olds today will live beyond the age of 90, while roughly one in seven will live past 95. If your plan is to retire at age 65, and you sock away enough money to tide yourself over until age 85, your nest egg may not suffice if you wind up alive and kicking well into your 90s. Therefore, if your health remains strong during your 40s and 50s, it should prompt you to ramp up your savings rate even more in order to pad your nest egg.
Now, let's assume you're 55 years old and have $400,000 in retirement savings so far. If your plan is to contribute $500 a month to your retirement plan between now and age 65, then you'd increase your savings balance to $870,000 if you were to invest your money at an average annual 7% return (which is a bit below the stock market's average). But if you were to increase those monthly contributions to $1,000, you'd end up with about $953,000, assuming that same starting balance and 7% return. And that could make a world of a difference if you end up living longer than expected.
Another option to consider if your health holds steady as you age? Extending your career and working longer. In doing so, you'll not only have the opportunity to keep padding your nest egg but also grow your Social Security benefits. For each year you delay taking benefits past your full retirement age, you'll boost those payments by 8%, up until age 70. If you continue to hold down a job so you're able to hold off on filing for Social Security, you might grow your benefits substantially, thereby putting slightly less pressure on yourself to ramp up on the savings front.
Entering retirement in good health is a positive thing in theory, but it could make for a trickier financial situation. If your health is excellent as your golden years near, take steps to increase your retirement income, whether by padding your savings, growing your Social Security benefits, or both. That way, you'll be in a position to celebrate your great health rather than worry about the monetary repercussions of living longer.