The folks at Shroders conduct an annual retirement survey, and their findings in 2023 and 2024 are eye-opening -- and alarming. Here's a look at some of them, including how much income workers expect to need in retirement, along with how much retirees report actually spending.
Some of the data in the surveys can guide you in your own retirement planning, as you determine how much money you'll need for retirement and how you'll get it. (Keep in mind that there are many possible sources of income in retirement besides Social Security.)
Image source: Getty Images.
How much workers expect to need in retirement
Per the 2023 Shroders survey, "When asked to forecast how much monthly income they will need to enjoy a comfortable retirement, non-retired survey participants said $4,940, on average." That's a bit more than $59,000 annually, and it might seem a reasonable sum to you.
Here's the rub, though: Actual retirees were among the survey respondents, and they said that on average, their monthly income was $4,170 -- or about $50,000 annually -- and that includes Social Security. Yikes!
Even worse, about 37% of them reported having monthly income of less than $2,500!
For a little context, know that as of August, the average monthly Social Security benefit for retirees was just $1,920, or about $23,000 for the year. Remember, of course, that that's an average, and that if your lifetime earnings were above average, so too will be your Social Security benefits. (And there are even multiple ways to increase your Social Security benefits.)
How much income will you need in retirement?
How much income will you need in retirement? That's a good question to try to answer well before you retire. You might come up with an answer by applying one of many rules of thumb, such as estimating that you'll need 80% of your pre-retirement income. But that could be way off the mark, depending on various factors such as your health, lifestyle, travel plans, and gifting habits.
So instead, try to make a more accurate estimate. You might start by detailing your current spending patterns, and estimating what they'll be in retirement. For example, you might be spending $3,000 per month in mortgage payments now, while expecting to have no mortgage payments come retirement.
Include categories such as:
- Groceries
- Dining out
- Clothing
- Healthcare
- Transportation
- Insurance
- Utilities
- Entertainment
- Education
- Travel
- Gifts
- Charitable donations
- Memberships
- Household expenses, maintenance, and repairs
- Taxes
Once you've estimated how much you're likely to need each year, you can multiply that figure by 25 to arrive at how big a nest egg you'll need if you're using the flawed-but-helpful 4% rule. (There are lots of possible withdrawal strategies -- read up on them to see which makes the most sense for you.)
Here's how you might arrive at your estimated necessary nest egg: Let's say you figure you need a retirement income of $80,000, some $30,000 of which will come from Social Security. (You can get an estimate of your future Social Security benefits by setting up a my Social Security account.) That leaves $50,000 in income you need to provide for yourself. Multiply that by 25, and you'll arrive at a needed nest egg of $1,250,000. To be more conservative, you might multiply by 30, arriving at $1,500,000, and you can multiply by smaller numbers to be less conservative.
Interestingly, the 2024 Shroders survey found investors who participate in a workplace retirement account such as a 401(k) estimating that they'll need $1.2 million in order to retire comfortably. Sadly, though, fully 46% expect to be retiring with less than $500,000. That doesn't have to be you, though!
Setting up a comfortable retirement
Don't start hyperventilating if amassing $1.25 million seems impossible. Depending on how far away your retirement is, it may be very achievable. Here's what happens when you sock away $10,000 annually:
|
Growing for |
Growing at 8% |
Growing at 10% |
|---|---|---|
|
10 years |
$156,455 |
$175,312 |
|
15 years |
$293,243 |
$349,497 |
|
20 years |
$494,229 |
$630,025 |
|
25 years |
$789,544 |
$1.1 million |
|
30 years |
$1.2 million |
$1.8 million |
|
35 years |
$1.9 million |
$3.0 million |
|
40 years |
$2.8 million |
$4.9 million |
Calculations by author via moneychimp.com.
Note, too:
- You can significantly improve your financial condition by delaying retirement for a few years. For each year that you do so, you can save and invest more money -- and your already-invested dollars will have another year in which to grow. Your nest egg will need to support you for one less year, too, and you may be able to remain on your employer's health plan longer.
- Make sure you're investing your long-term money effectively. An easy way to do so is via one or more broad-market, low-fee index funds such as one that tracks the S&P 500. Index funds are actually terrific ways to save for retirement.
- Make good use of tax-advantaged retirement accounts such as IRAs and 401(k)s. Roth accounts will let you withdraw funds in retirement tax-free, if you follow the rules.
- You might even relocate to a less costly home or region, which could lower your cost of living considerably.
Planning for retirement is a supremely important task, and it can be complicated and intimidating. Don't put it off -- and don't be afraid to consult a financial advisor, either.
