Your senior years may be some of the best of your life, but retirement comes with a hefty price tag. Especially with older adults living longer and general living expenses continuing to climb, you may need to save more than you think.
While everyone's financial situation is different and how much you need to retire comfortably may differ significantly from what someone else may need, getting an idea of how much other older Americans expect retirement to cost can help you determine whether you're in the right ballpark.
Just how expensive is retirement?
Putting a price tag on retirement itself can be tough, but the best place to start is to estimate how much you expect to spend each year. Among U.S. adults age 55 to 75 with at least $100,000 in savings, the average person expects to need around $135,100 per year in retirement to live their "best life," according to a survey from Charles Schwab.
Again, what other people expect to spend in retirement may differ from your needs, so it's important to base your savings goals on your unique situation.
To figure out how much you should expect to spend, start by creating a retirement budget. You may end up spending more or less in retirement than you are now, so consider how your costs might change as you get older. You could need to budget more for travel and hobbies, for example, and you may have to set aside more than you expect for healthcare expenses. In addition, if you plan to make any major life changes such as moving to a new city or downsizing to a smaller home, consider how that will affect your retirement spending.
Setting a savings goal
Once you have an idea of how much you think you'll spend each year in retirement, the next step is to determine how much you'll have to save by the time you retire.
First, consider how much money you'll be receiving from other income sources, such as Social Security benefits or a pension. From there, you can determine how much of your retirement income will need to come from your savings.
Next, run your information through a retirement calculator to see how much you should aim to save by the time you retire, as well as how much you should be socking away each month to achieve that goal. If that target is unrealistic, try tweaking your calculations. For example, consider changing your desired retirement age or adjusting the amount you expect to spend each year, because that can reduce how much you'll need to save.
Finally, be prepared to make sacrifices. If your goal is to be able to afford to spend $135,000 per year in retirement, you'll likely need to have well over $1 million saved by the time you retire. Depending on your financial situation, that may or may not be feasible. But if you're willing to either make budget cuts now to save more or find ways to reduce your spending in retirement, it will be easier to achieve your goals.