Our monthly retirement income will be determined by a number of criteria that are specific to your lifestyle and ambitions.
One of the most important questions to address as you make long-term financial goals is: What is a good monthly retirement income?
The answer will have a direct impact on your savings plan.
According to Bureau of Labor Statistics data from 2016, the average 65-plus household spends $48,885 per year, or about $4,000 per month.
However, because no two people are the same, determining how much money you'll need on a monthly basis will be determined by your lifestyle, ambitions, and personal retirement vision.
Here are some starter prompts to get you started.
Visualize Your Retirement
It can be beneficial to work backwards while planning for your ideal retirement. What do you want to do with the rest of your life?
Do you want to downsize and move to a condo, the countryside, or do you want to travel?
Taking the time to consider how you want to live after you retire will provide you with an excellent starting point for estimating your spending and devising a strategy to get there.
Create an Estimate
The 4 percent guideline is one way to estimate your monthly retirement income. The rule is that you withdraw not more than 4% of your retirement funds during your first year of retirement.
Then, in succeeding years, you can withdraw the same amount, plus a little more to account for inflation. The 4% rule, of course, has its restrictions.
For example, it's based on a portfolio that's evenly split between stocks and bonds. Working with an expert financial advisor is an excellent method to create a personalized monthly retirement income plan that is tailored to your specific circumstances.
Possible Financial Risk Factors To Think About
The next stage is to figure out how to arrange your assets after you've calculated how much monthly retirement income you'll need.
Building a retirement program that allows you to live longer can provide you a sense of security that your savings will be sufficient to meet your needs and desires in your post-working years.
You'll need to keep an eye on how market volatility and inflation are affecting your savings and make any adjustments. You also have to think about taxes.
Remember that you'll be taxed on payouts from tax-deferred accounts like 401(k)s and traditional IRAs.
It's also a good idea to budget for health-care bills and possible long-term care. You can secure your retirement money by doing so.
Create A Reliable Pension Pot
In order to live comfortably in retirement, you'll need a range of income streams, such as:
- Social Security, pensions, and annuities provide a steady monthly retirement income. If at all possible, attempt to pay all of your critical expenses with assured revenue from these sources.
- 401(k)s and regular IRAs are excellent retirement-saving vehicles because they allow you to save money before taxes. During your working years, this lowers your taxable income.
- After-tax dollars are used to fund Roth IRAs and Roth 401(k)s, allowing you to take tax-free withdrawals in retirement. These accounts can be used in conjunction with taxable accounts to help you manage your retirement tax liability.
- Whole life insurance accumulates equity across time. Once a policy has built up enough value, you can access the cash value if you need it. Consider it a good cushion to safeguard you against market turbulence.
- Cash reserves might provide you even more sense of security. It's a smart option to have two years' worth of income in a liquid and convenient account where the cash can be accessed without penalty or large taxes if the funds are needed.
Another thing to consider as you contemplate your monthly retirement income is how you intend to build a legacy.
You can construct a plan with the help of a financial advisor that maximizes your income while also accounting for the assets you want to leave to your successors.
So, while there is no single answer to the question of "What is a good monthly retirement income?"
Working with a knowledgeable financial advisor can aid you with forging a clear path to your unique retirement targets.