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How Much Should You Have Saved for Retirement? 15 Things to Consider

By Christy Bieber - Jul 14, 2021 at 7:00AM
Hands cradling egg with the word Retirement written on it.

How Much Should You Have Saved for Retirement? 15 Things to Consider

It's crucial to set the right retirement savings goal

If you want a financially secure retirement, you need savings to support you. But it can be difficult to determine just how much money you need in your nest egg to see you through your later years.

If you aren't sure what your retirement savings target should be, answering these 15 questions will give you insight into exactly how much you need set aside for your future.

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1. What age do you plan to retire?

Your planned retirement age is one of the biggest factors in setting retirement goals.

If you're hoping for early retirement, your nest egg will need to be much bigger since your savings will have to support you for many more years. You may also need to cover costly health insurance premiums until Medicare kicks in at 65.

But if you're planning on staying in the workforce as long as possible, you may not need your savings to support you for as many years.

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2. What do you earn?

Your current salary (and your likely preretirement income) has a huge impact on the amount of money you'll need saved for your future.

See, you generally get used to a certain standard of living based on your earnings. And most experts advise that you replace around 80% of preretirement income to be able to maintain your quality of life.

That means if you earn a lot, you'll need a larger nest egg to provide enough income. To have enough saved, many experts recommend you have 10 times your final salary invested before retiring.

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401k income statement and pie chart with calculator.

3. What income sources will you have?

Your retirement savings account probably won't be the only source of income you have. You will likely have Social Security benefits and may have pension money coming in from an employer as well.

Your savings needs to combine with these other income sources to give you enough to live on.

So, it's crucial to consider the big picture when deciding exactly how much money needs to come from investment accounts versus other income sources.

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4. Do you plan to do part-time work while retired?

If you plan to work part-time when you retire, you may not need as large a savings account balance.

But you should be aware that a desire to work doesn't necessarily mean you'll be able to continue earning a paycheck. You may find there are few opportunities later in life.

If you plan to start Social Security benefits prior to full retirement age and work while collecting them, then you may also end up forfeiting some of the money temporarily.

This can affect your budget and the amount of supplementary savings you need your retirement investments to produce.

ALSO READ: 3 Things to Know if You Claim Social Security While You're Still Working

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Social Security card between hundred dollar bills.

5. When will you claim Social Security benefits?

Your Social Security strategy also has a huge impact on how much you need saved for retirement.

See, your age when you start getting checks affects the amount of monthly income Social Security will provide.

If you plan to claim benefits ASAP, then you can't expect as much money from this source and may need to rely on savings to make up the difference.

On the other hand, if you plan to delay claiming, you may have some years when you'll rely solely on your retirement savings -- so you need to make sure that your nest egg can provide enough income to serve as your sole source of support during that time.

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6. Do you have a spouse that's relying on you?

If you are married, you need to take your spouse into account as well.

Ideally, you should each have your own retirement savings. But your spouse may be reliant on you for support if you are the high earner.

If you'll need to help provide for a spouse as a retiree, your nest egg needs to be larger since there are two people to feed and cover necessities for.

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Empire State Building and downtown New York City seen at dusk.

7. Will you live in a high cost-of-living area?

Where you live (or where you plan to settle when you retire) can affect how far your nest egg goes.

If you live in one of the more expensive parts of the country, you'll need a larger nest egg to cover the basics.

On the other hand, if you anticipate living in an inexpensive place where your money will stretch, then you may be able to get away with saving less.

ALSO READ: These Are the 10 States Where Retirees Need the Most Income

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People shaking hands in front of a house.

8. Will you downsize your house?

If you're a homeowner, your decision about your house after retirement can affect how much you need saved.

If you have a paid-off home and you downsize, you'll get some extra cash you can use to bulk up your retirement accounts. Downsizing could also enable you to eliminate a mortgage if you haven't already. You could buy a smaller home with the profits from the sale of your old one.

If you plan to remain in your current property, though, you'll need to make sure your retirement savings account provides enough money to cover mortgage payments (if you'll still owe them), as well as property taxes, maintenance, and repairs.

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9. Have you estimated your healthcare costs?

Healthcare can be extremely expensive for seniors. In fact, the average senior couple retiring in 2021 could face out-of-pocket costs of around $300,000, according to a recent study.

It's important to take your future medical care spending into account as you need to make sure your retirement account balance is large enough to help you protect your health.

ALSO READ: What Will Healthcare Cost You in Retirement? Prepare to Be Shocked

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10. What do you expect your tax rate to be?

Taxes don't disappear once you are retired. You will likely owe taxes on distributions from your investment accounts, unless you saved in a Roth account.

And depending on your total earnings, part of your Social Security benefits may be taxed as well.

Taxes will reduce the value of your retirement account withdrawals and Social Security benefits. So be sure your retirement savings provides enough income after the IRS takes its cut.

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11. What are your plans for retirement?

The manner in which you wish to spend your golden years is going to affect the amount you need saved as well.

If you plan to be a homebody, you may not need as much money as if you plan to travel the world or indulge in a very expensive hobby.

You want to be able to fulfill your dreams in retirement without finances being an obstacle, so take the costs of your grand plans into account.

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12. How aggressively do you plan to invest?

The more risk you are willing to take on with your investments, the larger your potential returns but the greater the chances of losing money.

On the other hand, if you plan to be very conservative with your investment portfolio, your returns may be relatively low.

You need to think about your investing style to estimate your likely returns as this will also impact the total amount of savings you need.

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Telehealth consultation with doctor.

13. What's your health status?

The status of your health has a big impact on how much you need saved for a few reasons.

If you are very healthy, then you may live for a long time and will need your savings to support you for many years.

On the other hand, if you aren't in good physical shape, you may incur lots of expensive healthcare costs or may even need long-term care, which could cost a fortune. You need to be prepared for these expenses.

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14. How long do people in your family generally live?

While your family history isn't a perfect predictor of how long you'll live, it can give you some insight into the likelihood of a very long retirement.

If everyone in your family has lived to 100, then you may want to assume that odds are you'll do the same -- and you don't want to run out of money toward the end of that long life, so you'll need to save more.

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15. Do you plan to provide financial support to loved ones?

Finally, if you plan to serve as a caregiver for your own aging parents or you intend to provide financial support to grown children, then you need to plan for the costs involved.

You don't want to be in a position where you can't provide the financial help you desire without worrying about your retirement nest egg running dry.

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There's a lot to consider when setting retirement goals

As you can see, there's a lot to think about to set the right retirement savings goals.

By considering your plans for your later years, your health status, and how long your savings will need to support you, you can make a fully informed choice about the amount you need for your future.

The Motley Fool has a disclosure policy.

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