Financial professionals

How much will I need for retirement

Person sitting on a boat dock

Search online for “how much will I need for retirement?” and you’ll be flooded with results — ranging from articles with general guidance to highly detailed calculators. The estimates they’ll produce will be all over the map, too.

Why is answering this question so tough? Because no formula or rule of thumb can predict what your retirement experience will be like. To find the answer, you first have to define what retirement means to you.

It starts with a picture of retirement

By taking the time to clearly outline the retirement lifestyle you’re trying to create, it becomes easier to work backwards and identify the financial resources it will take to make that future possible.

Yes, looking at your current budget and lifestyle can be a helpful starting point, but only if your vision for retirement is similar to the life you’re living today. Consider changes such as moving to a new location with a different cost of living and taxes, which will impact the resources you’ll need.

Realistically, that picture will change over time — and the amount you’ll need to save will change with it. That may be because your own dreams for retirement evolve. Or, it could be that outside factors (like longevity and inflation) can complicate calculating what you’ll need.

Regularly reviewing your own goals for retirement with a financial professional, along with outside factors that could impact your savings approach, is crucial for keeping your strategy on track.

Think “nest eggs” instead of “nest egg”

Your financial needs in retirement will be a mix of different types of expenses — some of them predictable and recurring (like your monthly living expenses), and others less predictable in amount and frequency (think of a vacation, a large purchase, or hospital bills). That makes trying to calculate a total savings target for retirement really tough. Instead, it might make more sense to break down your goals into different categories.
  • What will you need for regular income and recurring expenses?
  • What large or infrequent expenses do you need to plan for? (Vacations? Major purchases? An emergency fund?)
  • What resources will you need for health- and long-term care needs? (Keeping in mind that while resources may be needed at any time, these expenses tend to escalate later in retirement)
  • What goals do you have for your legacy that need to be accounted for and protected?
  • Retirement calculators can also help as a starting point.

By breaking your expenses into categories, you can also more easily track the progress you’re making towards each goal, and see any gaps and shortfalls that need to be addressed.

Match the right tools to the job

Another advantage of categorizing needs is that you can better evaluate whether your assets are properly positioned. It’s not just about how much you’re saving — it’s also about where you’re saving for the future.

A hammer is great for nails, but terrible for screws. Planning for retirement is no different. Just because a product is labeled as a retirement savings tool doesn’t mean it’s capable of meeting all of your retirement needs.

Products designed to accumulate money may not be ideal for creating lifetime income, or covering medical expenses in retirement. Other products may have unique features or tax benefits that make them better equipped to solve your unique retirement challenges.

By working with a financial professional, you might discover a mismatch between the tools and strategies you’re currently using versus the goal you’re trying to achieve. And, they might be able to suggest solutions that will help your money last throughout retirement.

This material provides general information that is designed to be educational in nature and is not intended as specific tax or legal advice to any particular individual nor the law of any particular state. Please seek the advice of a qualified tax or legal professional for your specific situation.

Products are issued by and guarantees based on the claims-paying ability of the AuguStar Life Insurance Company and AuguStar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.

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