How Much Income Will I Need in Retirement?
Understanding the expenses, income sources and changing needs that may shape your retirement-income picture.
Why Estimate Your Retirement Income Needs?
Retirement income needs are not necessarily the same as the income you earned while working. Some expenses may decrease, others may increase, and new expenses can emerge over time.
Creating an estimate can provide a starting point for thinking about how your expected income sources and savings may relate to your anticipated spending.
There is no single retirement-income number that applies to everyone. Your needs may depend on your lifestyle, location, healthcare costs, taxes, financial resources and how long retirement lasts.
Not Every Retirement Expense Serves the Same Purpose
One useful way to think about retirement income needs is to separate expenses that are necessary from spending that supports the lifestyle you want to maintain.
What Do You Need to Cover?
These are expenses that may continue regardless of how much discretionary spending you choose to do.
- Housing and utilities
- Food and household expenses
- Healthcare and insurance
- Transportation
- Taxes and other recurring obligations
What Do You Want Retirement to Include?
Retirement may also include spending that reflects personal goals, interests and the lifestyle you want to pursue.
- Travel and vacations
- Dining and entertainment
- Hobbies and recreation
- Gifts and family support
- Other personal goals
Expenses can change over time. Some people may spend more during the early years of retirement and less later, while others may experience the opposite pattern.
Where Will Your Retirement Income Come From?
Retirement income may come from several sources rather than one single account or benefit. Understanding what you may have available can help you identify where your income needs may be met.
The amount, timing and tax treatment of each source can differ, so looking at them together can be useful when estimating your overall retirement-income picture.
The goal is to see the complete picture. Comparing expected income with anticipated expenses can help identify whether there may be a gap that savings or other resources need to address.
Your Income Needs May Not Stay the Same
A retirement-income estimate is a starting point. Your circumstances and expenses may change as the years go by.
Inflation
The cost of goods and services can change over time, which may affect how much income is needed to maintain a particular lifestyle.
Medical & Healthcare Expenses
Healthcare premiums, out-of-pocket costs and changing medical needs can affect retirement spending.
Tax Considerations
The amount of income available to spend can depend in part on the tax treatment of different income and withdrawal sources.
Changing Priorities
Travel, hobbies, family support and other lifestyle choices can change the amount you spend during different stages of retirement.
How Long Retirement Lasts
The length of retirement can affect how long savings and other income sources may need to support your spending.
The Unexpected
Home repairs, family needs, changes in employment or other unexpected expenses may alter the retirement-income picture.
Think of retirement income as something to review, not a number set once and forgotten. Changes in circumstances may warrant revisiting the assumptions behind an income estimate.
How Can You Estimate Your Retirement Income Needs?
There is no single formula that works for every household. A practical starting point is to look at your expected spending, identify potential income sources and consider the factors that could change over time.
Estimate Spending
Start by estimating essential expenses and the lifestyle spending you expect during retirement.
Identify Income
List potential income sources such as Social Security, pensions, employment and other resources.
Consider the Gap
Compare anticipated spending with expected income to understand whether savings or other assets may need to help fill the difference.
Review Over Time
Revisit your estimate as your retirement date, expenses, income sources and circumstances change.
An estimate is a planning tool, not a guarantee. Actual expenses, income, investment values, taxes and other circumstances can differ from what you expect today.
What Happens When Income and Expenses Don't Match?
For some retirees, expected income sources may cover most anticipated expenses. For others, savings or additional resources may need to help make up the difference.
What May Come In
- Social Security
- Pension income
- Employment or other income
- Other recurring resources
What May Go Out
- Essential living expenses
- Healthcare and insurance
- Lifestyle and discretionary spending
- Taxes and other obligations
If There Is a Difference
A difference between expected income and expenses does not automatically point to a particular investment or financial product. It simply identifies an area that may warrant further planning and consideration of available resources.
Retirement Income Needs Can Change Through Different Stages
Retirement is not necessarily one continuous spending pattern. Expenses, priorities and sources of income may change as circumstances evolve.
Active Years
Travel, hobbies, entertainment or other activities may influence spending during the early years of retirement.
Changing Priorities
Spending patterns may shift as lifestyles change, while healthcare, housing and other costs remain important considerations.
New Considerations
Healthcare needs, family considerations, changing activities and other circumstances may influence future spending.
There Is No Universal Retirement Spending Pattern
Some retirees may spend more early in retirement, while others may have relatively consistent expenses or experience higher costs later. The important consideration is how your own circumstances may evolve.
Start With a Clearer Picture of Your Retirement Income Needs
Understanding your expected expenses and potential income sources can help you ask better questions as you prepare for retirement.
Educational Disclosure
This material is provided for educational and informational purposes only and is not intended to provide individualized investment, financial, tax or legal advice. Retirement-income needs and strategies depend on individual circumstances, goals, resources and other factors.
Estimates of future expenses, income, investment values, taxes or other financial factors are subject to change and may differ from actual results. Consider consulting qualified financial, tax and legal professionals regarding your individual circumstances before making financial decisions.