How Much Do You Need to Retire Comfortably?

Submitted by JMB Financial Managers on June 19th, 2024

A few years ago, there were ads from financial services companies asking, “What’s your number?” The number was the money you needed to retire comfortably. This was an effective way for financial services companies to get people thinking about retirement planning and encouraging them to strive toward a specific monetary goal.

But is asking for a number the right question? If you are serious about retirement, it’s not simply about whether or not you have enough money; it’s about how all your assets work together to fund the lifestyle you envision and other personal financial considerations, such as leaving a legacy and healthcare costs.

Start With a Number, But Don’t Stop There

Working toward a specific retirement goal can motivate you, especially if retirement is years away. A target helps you estimate how much you may need to prepare for your retirement years.

Plenty of online calculators can help you estimate your retirement number. However, as with any calculator, your results depend on the information you provide and on thinking through the “what if” scenarios based on a number of factors such as the inflation rate, rate of return, the number of years your savings will need to last, and the amount of money you can set aside from now until your retirement date.

Fidelity Investments has a straightforward approach if you are looking for a way to come up with a simple number. According to Fidelity’s rule of thumb, you should look to have set aside at least:¹

1x salary by age 30
3x salary by age 40
6x salary by age 50
8x salary by age 60
10x salary by age 67 (full Social Security retirement age)

Of course, these are just general estimates. As Fidelity suggests, these targets help provide a starting point for engaging a financial planner, building your strategy, and assessing your progress.

How Your Assets Should Work Together in Retirement

You likely have many different asset buckets targeted for retirement. You may have employer-sponsored retirement plans, insurance products, real estate, or investments. You may even be expecting that Social Security may play a role in your retirement.

Social Security

According to the Social Security Administration, it is still a major source of income for most people over age 65.²

Even if you anticipate that your social security income will play a minor role in your retirement, the program you’ve spent a lifetime paying into may help provide a predictable income that can contribute to your overall financial strategy.

You can claim Social Security as early as age 62. However, by waiting until your full retirement age, you can receive 100% of your monthly retirement benefits.

The maximum benefit in 2024 ranges from $2,710 to $4,873 per month, depending on retirement age. The table below shows the breakdown.²

There are advantages and disadvantages to taking Social Security as early as the age of 62. The same is true about waiting until age 70 to start benefits. There’s no correct answer, but there are some key considerations to take into account as you evaluate your choices.

Do you plan to continue working? You may see some of your payments withheld if you are still working while collecting early benefits.
What is your marital status? If higher earners take benefits early, it may factor into any potential survivors’ benefits.
Are you in good health? Your health status could affect your decision. One idea is to perform a “break-even” calculation comparing lifetime benefits. You can start by comparing age 62 with your full retirement age.
Do you need the money? If you don’t need the money, you may want to consider waiting.

And don’t forget, Social Security benefits may be taxable. So, don’t overlook potential tax liability when assessing your monthly benefit.

This blog post is for informational purposes only and is not a replacement for real-life advice from a financial adviser. Consult your tax, legal, and accounting professionals for more specific updates on whether or not your Social Security Retirement Benefits are subject to federal or state taxes.

Taxable, Tax-Deferred, Tax-Exempt Accounts

As you save and invest for retirement, you may accumulate assets in several different types of accounts, including:³

Taxable accounts: These types of accounts are funded with money that has already been taxed, such as mutual funds, brokerage services, and savings accounts.
Tax-deferred accounts, such as employer-sponsored plans and an individual retirement account. Contributions to these accounts are made with pre-tax dollars.
Tax-exempt accounts: These types of accounts are funded with money that has already been taxed and invested in financial products like municipal bonds, or a ROTH IRA.

One of the most important parts of orchestrating your retirement income strategy is determining which assets to take and in which order.

There is no one-size-fits-all answer, but there are some general guidelines that can help when starting to think about a withdrawal strategy.

For example, one approach to consider is withdrawing money from taxable accounts first, then tax-deferred, then tax-exempt. By using taxable money first, you can avoid paying taxes as long as possible with tax-deferred investments. And your tax-exempt accounts remain tax-exempt for a longer period. Ultimately, your decision will be influenced by a wide range of other considerations, including withdrawal fees, surrender charges, and other costs that may be associated with each specific account.

But, when possible, consider using the power of tax deferral and tax exemption to your advantage.

As mentioned, this blog post is for informational purposes only and is not a replacement for real-life advice. Your tax, legal, and accounting professionals may also have some additional insights about the tax implications of certain withdrawal decisions.

How To Close a Retirement Savings Gap If You Are Behind

If you feel you are not where you want to be on your journey toward retirement, you are not alone. And you are not powerless. There are financial planning strategies that may help you better prepare for retirement. Here are a few ideas:

Consider working longer – taking early retirement may sound tempting but working just a few more years can make a difference.
Delay Social Security – Consider waiting to take your benefits until you are at least at full retirement age. The accompanying table illustrates the differences between taking money early and waiting.
Save more – there are various tools designed to help boost retirement savings beyond what’s offered in a company-sponsored plan and beef up your retirement nest egg.
Make your investments work as hard as you do – you may want to look at your retirement investment strategy. Will your current risk tolerance suffice, or would other investment choices fit better?
Look into catch-up provisions. A catch-up contribution is a type of retirement savings contribution that allows people aged 50 or older to make additional contributions to 401(k) accounts and individual retirement accounts (IRAs):
1. For 2023, the catch-up contribution limit for an IRA is an additional $1,000 on top of the annual contribution limit. For 2024, the contribution limit is $7,000 (plus the additional $1,000 catch-up contribution).⁴
2. For 401(k) participants, the catch-up contribution limit is $7,500 for 2023, on top of the annual $22,500 contribution limit. The catch-up contribution limit is $7,500 in 2024 on top of the annual $23,000 contribution limit.⁴
3. The IRS allows catch-up contributions for people who also participated in 403(b) and other plans. For 2024, the catch-up contribution amount for these plans is $7,500.⁴
4. For SIMPLE IRA plan participants, catch-up contributions are $3,500 in 2023 and 2024.⁴
Investigate moving to a state with a lower cost of living for the retirement lifestyle you want to lead. For example, some states tax social security income, while others do not.

You Don’t Need To Figure This Out All By Yourself

Regardless of your current age or financial situation, having a well-thought-out retirement strategy is one of the most critical actions you can take. Having a retirement number in mind is a good place to start. Still, effective retirement strategizing is a multifaceted process that needs to balance your financial position with personal fulfillment and other values unique and important to each individual. What further complicates the strategy is that you need to factor in healthcare costs, distribution approaches, and estate management.

It’s a lot. As financial professionals, we may be able to help. We can help show you how your various investment accounts can work together toward your retirement and prepare an annual progress study so you know exactly where you stand.

If you would like to review your current lifestyle, retirement goals, and formulate a written strategy, please contact our office.

Fidelity.com, February 14, 2024: https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire
SSA.gov, February 2024: https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf.
Kiplinger.com, June 28, 2022: https://www.kiplinger.com/retirement/retirement-planning/604859/in-what-order-should-you-tap-your-retirement-funds
IRS.gov, November 1, 2023: https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000#:~:text=Highlights%20of%20changes%20for%202024,to%20%247%2C000%2C%20up%20from%20%246%2C500.

Once you reach age 73, you must begin taking required minimum distributions (RMDs) from a traditional IRA in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Once you reach age 73, you must begin taking RMDs from your 401(k), 403(b), or any other defined contribution plan in most circumstances. Withdrawals from your 401(k) or any other defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Much like a Traditional IRA, distributions from SIMPLE-IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 73, you must begin taking required minimum distributions.

About the Author

Jack Brkich III, is the president and founder of JMB Financial Managers. A Certified Financial Planner, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal. To learn more visit https://www.jmbfinmgrs.com/.

Connect with Jack on LinkedIn or follow him on Twitter.

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