How to use MoneyWellth’s Retirement Calculator

1. Enter Required Details:

   Start by entering your current age, income, savings balance, and how much you are regularly saving toward retirement each month. These details will help you get an initial snapshot of where your retirement savings are projected to land

2. Customize your Results:

   Expanding the Optional settings lets you add what you expect to receive from Social Security (get an estimate here), adjust your spending level in retirement, change your expected retirement age and more. It’s important to be realistic and honest with your contributions today and in the future.

3. Important to note:

   Social security is often a major component of most American’s retirement funds, however it is not intended to be a primary source of retirement income. By clicking the Retirement (Optional) tab on the bottom left-hand side bar, you will see a link to a government provided Social Security Calculator where you can get a quick estimate of your expected monthly Social Security benefits in retirement. You will need to input this value in the “Other Expected Monthly Income” box.

4. Analyzing your Results & Take Action:

   the output of this calculator will provide you with an estimate of what you’ll have given your current retirement savings and ongoing contributions versus what you will need, and the gap (if any) you will need to address. You can change your inputs to identify how different activities, such as saving more or planning to retire later on, might influence your retirement outlook. If you identify a significant gap, it is important that you take action – whether it’s by tracking your spending and budgeting so you can save more money or exploring different investment options to ensure you’re working towards your retirement savings goals.

Why Prioritize Retirement Planning?

Retirement can be an expensive proposition, with expenses ranging from healthcare and housing to travel and leisure. According to a study by the Employee Benefit Research Institute, the average retirement cost for a 65-year-old couple retiring in 2021 is estimated at $361,000. Moreover, life expectancy is increasing, and with people living longer, the cost of retirement is likely to rise even further.

Saving and planning for retirement can help you avoid financial struggles in your later years. You don’t want to be in a position where you’re forced to work past your retirement age or rely on Social Security benefits alone. By saving and investing early, you’ll have more financial security and freedom to pursue your interests and goals in retirement.

The Importance of Saving for Retirement Early

One of the most significant advantages of starting to save early is the power of compounding. Compound interest is the interest earned on your initial investment and any interest that accrues on it over time. The longer your money is invested, the more it can grow through compounding.

For instance, suppose you started saving $500 per month at age 25, and you continued to invest that amount every month until you retired at age 65. If your investments returned an average of 7% annually, you would have over $1 million in retirement savings. However, if you waited until age 35 to start saving, you would need to save over $1,000 per month to achieve the same result.

Common Misconceptions about Retirement Planning

1. Retirement is too far away to start planning: It’s easy to feel like retirement is a long way and to put off planning for it. However, the earlier you start saving, the more time your investments have to grow, and the less you’ll need to save overall.
2. I can rely on Social Security: Social Security benefits are an essential part of retirement income for many individuals. However, it’s important to remember that Social Security is not designed to be the sole source of retirement income. The average monthly Social Security benefit in 2021 is just $1,544, which may not be enough to cover all of your expenses in retirement. Additionally, there is a risk that the government could do away with Social Security benefits altogether. While this is unlikely, it’s not entirely impossible. The Social Security trust fund, which pays out benefits, is expected to run out of money by 2034, according to a report by the Social Security Board of Trustees. If the government doesn’t take action to address this issue, Social Security benefits could be reduced, or the program could be eliminated altogether.
3. I can catch up on savings later: While it’s possible to catch up on savings later, it will be more challenging and may require you to save a more significant portion of your income. The earlier you start saving, the easier it will be to accumulate wealth for retirement.
4. Investing is too risky: Investing does involve risk, but it’s essential to remember that not investing can be riskier. By not investing, you may miss out on the opportunity for your money to grow through compounding, leaving you with a smaller retirement nest egg.

How Much Should I Save for Retirement?

Retirement is a major milestone in life that requires careful planning to ensure financial stability in your later years. One of the most critical questions that individuals face when planning for retirement is, “how much do I need to retire?” The answer to this question can vary significantly depending on factors such as your lifestyle, health, and life expectancy. One popular rule of thumb is the 4% rule, which suggests that you can safely withdraw 4% of your retirement savings annually without running out of money. For instance, if you need $50,000 per year to supplement your retirement income, you’ll need to save $1.25 million. However, this is a general guideline, and your individual circumstances may require you to save more or less. Retirement planning calculators are a helpful tool you can use to help you identify exactly how much you should be putting away now to reach your retirement savings goals later.

Factors that Affect How Much You Need to Save to Retire

1. Your Lifestyle: Your lifestyle can significantly impact how much you need to save for retirement. If you plan to travel frequently, maintain multiple properties, or pursue expensive hobbies in retirement, you’ll need more savings than someone who plans to live a modest lifestyle.
2. Health Care Costs: Healthcare costs can be a significant expense in retirement, especially as you age. According to a study by Fidelity Investments, a 65-year-old couple retiring in 2021 can expect to spend $361,000 on health care expenses throughout retirement. This figure includes expenses such as Medicare premiums, deductibles, and out-of-pocket expenses.
3. Life Expectancy: Your life expectancy can impact how much you need to save for retirement. The longer you live, the more money you’ll need to cover your expenses in retirement. According to the Social Security Administration, a 65-year-old man today can expect to live until age 84, while a 65-year-old woman can expect to live until age 86. However, many people will live much longer than this, especially with advances in medical technology.
4. Inflation: Inflation can erode the purchasing power of your retirement savings over time. It’s essential to account for inflation when calculating how much you need to save for retirement. According to the U.S. Bureau of Labor Statistics, the inflation rate in 2021 was 5.4%.

Top Tips to Save for Retirement

To ensure you have enough retirement savings, it’s essential to start saving early and consistently. However, if you are late to the game it’s never too late to start, and if you’ve waited to start saving for retirement you should get started as soon as possible. Here are some tips to help you save for retirement:

1. Set a goal: Determine how much you need to save for retirement and set a realistic goal.
2. Create a budget: Track your expenses and create a budget that allows you to save for retirement while meeting your current financial obligations.
3. Maximize your contributions: Take advantage of your employer’s retirement plan, such as a 401(k), and contribute as much as you can. If your employer doesn’t offer a retirement plan, consider opening an Individual Retirement Account (IRA).
4. Invest wisely: Diversify your portfolio and choose investments that align with your risk tolerance and retirement goals. ETFs or Exchange Traded Funds are one of the easiest ways to invest in a diversified portfolio. Similar to buying a stock, ETFs allow you to buy a bundle of assets packaged into one fund or “stock.”

6 Best Ways to Save for Retirement

1. Employer-Sponsored Retirement Plans: Employer-sponsored retirement plans, such as a 401(k) or 403(b), are an excellent way to save for retirement. These plans allow you to contribute a portion of your income, and your employer may also contribute to the plan. Additionally, these plans offer tax benefits, such as tax-deferred growth and tax-deductible contributions.
2. Individual Retirement Accounts (IRAs): An individual retirement account (IRA) is a retirement savings account that individuals can open on their own. Like employer-sponsored retirement plans, IRAs offer tax benefits, such as tax-deferred growth and tax-deductible contributions. There are two types of IRAs: Traditional IRA and Roth IRA. The main difference between the two is when you pay taxes on your contributions and withdrawals.
3. Stocks and Bonds: Investing in stocks and bonds can be an excellent way to build wealth for retirement. Stocks offer the potential for high returns but come with higher risks, while bonds are generally safer but offer lower returns. A well-diversified portfolio of stocks and bonds can help you achieve the right balance of risk and reward for your retirement savings.
4. Annuities: An annuity is a financial product that provides a guaranteed stream of income in retirement. There are various types of annuities, such as fixed annuities, variable annuities, and indexed annuities. Annuities offer the benefit of guaranteed income, but they also come with fees and restrictions.
5. Long-Term Care Insurance: Long-term care insurance provides coverage for expenses related to long-term care, such as nursing home care or in-home care. This type of insurance can help protect your retirement savings from the potentially high costs of long-term care.
6. Financial Advisor Services: A financial advisor can help you create a retirement plan that is tailored to your individual circumstances and goals. A financial advisor can provide advice on retirement planning, investment strategies, and tax planning to help you build a financially secure future.

Conclusion

Planning for retirement is crucial to ensure a comfortable and financially secure lifestyle in your later years. It’s never too early to start thinking about retirement planning, and delaying investment can be a costly mistake. Understanding the types of investments available, such as employer-sponsored retirement plans, individual retirement accounts, stocks and bonds, annuities, and long-term care insurance, can help you build a well-diversified retirement portfolio. Additionally, setting realistic retirement goals, maximizing contributions, diversifying investments, planning for healthcare costs, and working with a financial advisor are all crucial steps in achieving a financially secure retirement. By taking action today and prioritizing retirement planning, you can enjoy a comfortable and financially stable retirement lifestyle in the future.