Episode•March 21, 2023•11 min

The Best Way to Figure Out How Much to Save for Retirement | Ep. 214

Are you trying to figure out how much money you need to save for retirement? This can be a tough question to answer, but it's important! In this episode, I share the best way to figure out how much money you need to save and some tips on how to make it happen. Enjoy! Every Tuesday, Tiffany answers one of your submitted questions. To submit a question for an upcoming episode, visit here: https://www.moneytalkwitht.com/asktiffany Key Takeaways When calculating how much to save for retirement, consider the age you plan to retire and ensure the money lasts until the end of life expectancy. Determine what your desired lifestyle in retirement will be and calculate how much income you need each year to maintain this lifestyle. Think about your expected sources of retirement income, such as pensions, annuities, social security benefits, etc. Consider how much risk you can tolerate with your investments depending on how close you are to retirement age. Ask yourself if you want to keep working part-time after retiring and if tax deferral strategies such as 401ks or Roth IRAs should be used for retirement planning. Factor in any other expenses, such as healthcare and long-term care costs. This podcast uses the following third-party services for analysis: Podcorn - https://podcorn.com/privacy OP3 - https://op3.dev/privacy

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Key Takeaways

1
Determine retirement age and plan for income to last through life expectancy
Consider when you plan to retire (65, 75, or earlier) and how long savings must last
If retiring at 65 with life expectancy of 90, money must cover 25 years of expenses
Later retirement reduces required savings but may limit enjoyment of retirement years
2
Calculate annual income needed based on desired retirement lifestyle
Define whether retirement will involve travel and activities or a more relaxed pace
Compare retirement lifestyle to current spending - will it be more, less, or the same?
Factor in how much income is required yearly to maintain the chosen lifestyle
3
Identify all expected sources of retirement income before determining savings needs
Check Social Security benefits at ssa.gov by creating an account to see projected amounts
Account for pensions, annuities, and other guaranteed income sources
Determine the gap between guaranteed income and needed income to calculate personal savings requirement
4
Adjust investment risk tolerance based on time until retirement
Longer time horizons allow for higher risk tolerance since market fluctuations have less impact
Shorter timeframes require more conservative investments to protect accumulated savings
Consider part-time work in retirement as it may reduce the total amount needed to save
5
Plan for healthcare and long-term care costs in retirement budgeting
Medicare doesn't cover all expenses - budget for additional healthcare costs as health declines with age
Long-term care is very expensive even in lower-quality facilities
Factor these potential costs into retirement savings calculations

Intro

In this episode of Tiffany's Take, Tiffany answers the common question of how much to save each month for retirement by providing a framework of considerations rather than a single number.
Tiffany is a financial coach and host of the Money Talk with Tiff podcast, helping listeners with practical money advice.

– Introduction to Retirement Savings Question

Tiffany introduces the popular question of how much to save for retirement and explains that instead of giving a direct answer, she'll provide key factors to consider since it depends on individual circumstances.

– Factor 1: Retirement Age and Longevity Planning

Consider what age you plan to retire and ensure savings will last through life expectancy. If retiring at 65 with average life expectancy of 90, plan for 25 years of retirement income needs.

If you plan to retire at 65, and let's say the average life expectancy is like 90, you have to make sure that your money lasts between 65 and 90 as far as your retirement planning.

– Factor 2: Desired Retirement Lifestyle

Determine what your retirement lifestyle will look like - whether you'll be traveling and active or taking a more relaxed approach - and calculate the annual income needed to support that lifestyle.

Are you going to be one of the people that wants to go, go, go, go, go? So you traveling everywhere, going places that you haven't been before? Or are you the type of person where you're going to be like, well, retirement's here. Now it's time for me to chill.

– Factor 3: Expected Retirement Income Sources

Identify all sources of retirement income including pensions, annuities, and Social Security. Visit ssa.gov to create an account and see projected Social Security benefits based on your earnings history.

find out how much social security benefits you'll be eligible for when you retire, you can go to ssa. gov and you can create an account and log in and they can actually tell you approximately how much you would get in retirement.

– Factor 4: Investment Risk Tolerance

Assess how much investment risk you can handle based on your time until retirement. Longer time horizons allow for more risk since market volatility has less long-term impact.

– Factor 5: Part-Time Work After Retirement

Consider whether you'll continue working part-time after retirement. This additional income can reduce the total amount you need to have saved.

a lot of people, even though they can't afford to retire, they're like, I really don't want to stop working. So they pick up part-time jobs. And there's nothing wrong with that.

– Factor 6: Tax Considerations and Strategies

Evaluate your retirement account types (traditional 401k/IRA vs Roth) and consider tax deferral strategies like backdoor Roth conversions to optimize your tax situation in retirement.

– Factor 7: Healthcare and Long-Term Care Costs

Budget for healthcare costs beyond Medicare coverage and consider expensive long-term care needs. Healthcare costs typically increase with age as health declines.

long-term care is... Very, very expensive. Even if you in the crappiest of nursing homes, it's expensive.

– Getting Professional Help

Tiffany offers to help calculate retirement needs and recommends consulting a financial advisor if you prefer not to manage investments yourself.

Resources

Topics

retirement planningretirement savingsfinancial planningSocial Securityinvestment riskhealthcare coststax strategies401kRoth IRAlong-term care