How Much Do I Need to Retire?

The amount you’ll need will depend on your retirement goals and lifestyle.  

To get a sense of what your retirement might cost, begin by asking yourself what you want to do after you stop working. Your answer will help to shape your retirement budget. Do you envision downsizing your home? Or buying a second place? Will you spend part of the year traveling? Or are you planning to stay close to home and volunteer your time? 

Your retirement savings target will depend on your annual costs—and how many years you spend in retirement. From there, you can begin to work backward to estimate how much money you might need to retire. 

It’s important to look at your entire financial picture to create a plan for how you’ll generate income. To get a sense of what that means, let's talk about different sources of retirement income, as well as some risks that could threaten your nest egg. 

If you’ve been saving for retirement for many years, you probably have investments. This is a powerful way to grow your money over time. But as you approach retirement, you may be looking for additional sources of income. A Northwestern Mutual financial advisor can help you leverage a diverse set of financial options to help you grow your wealth while also protecting it from common risks that could affect your retirement income. Properly managing these risks—like market volatility, taxes and inflation—is key to helping you get more out of your retirement savings. 

Let’s unpack six common sources of income in retirement. 

If you had a guarantee that the stock market was always going to increase, generating income with your investments would be stress-free. In reality, market volatility and your own longevity pose risks to your retirement income.  

The good news is that leveraging a range of income sources, like the ones noted above, can help you mitigate these risks. Here’s a quick checklist of situations that could impact your retirement income. 

While no one knows exactly what the future holds, the 2024 Northwestern Mutual Planning & Progress study found that 30 percent of Gen Z-ers and 32 percent of millennials expect to live to 100. The Centers for Disease Control and Prevention (CDC) puts the average life expectancy at about 75 for men and 80 for women—but that number is an average from birth. Many retirees live well beyond that. This is certainly a good thing, but it also presents a unique risk to your retirement savings.  

If you live longer than expected, you could deplete your savings too soon. Conversely, you might spend less than you planned out of fear of outliving your money. 

This is where income annuities and fixed income investments enter the picture. When paired with Social Security (and a pension if you have one), income annuities can provide steady streams of money that could last the rest of your life—even if that’s a very long time. Consider it a strong foundation for a comfortable retirement.  

Investments are an important part of retirement income, thanks to the growth they can offer over time. That’s critical when it comes to keeping up with rising prices (which is another risk we’ll get to). But investments also come with a well-known downside: Markets are volatile. 

There’s a decent chance you’ll experience several market corrections and a bear market or two during your retirement. The goal is to maintain a steady stream of income through all this volatility. If the majority of your savings are invested, you may be forced to sell stocks during a downturn to generate income for your living expenses—and that can take a big bite out of your savings. Pulling your money out of investments could also rob you of future gains. 

A general rule is to adjust your asset allocation so that your portfolio becomes more conservative as you age. In retirement, that often means investing more heavily in low-risk assets like bonds. While this helps to shield you from market declines, it can also lead to less of your money moving up when the market does well. Guaranteed income sources like Social Security and annuities can also provide fixed income through a downturn. Fixed-income investments generate income on a regular basis, usually through interest or dividend payments.  

Meanwhile, cash savings and the cash value of permanent whole life insurance can help you create the income you need. This can allow you to maintain your lifestyle while you wait for your stocks to recover. 

Staying ahead of inflation in retirement

Inflation is unavoidable, and it can weaken your buying power; $1,000 will go further in your first year of retirement than it will a decade later. It’s natural to want to keep your money safe, but avoiding risk can actually devalue your nest egg. Holding too much in cash, for example, likely won’t generate the returns you’ll need to keep pace with inflation.  

The best way to account for inflation in retirement planning is to keep a portion of your savings invested. Investments have historically been one of the best ways to grow your money over time. 

Managing taxes in retirement

Taxes are another major consideration when you’re approaching retirement or are already there. Just like inflation, taxes can eat away at your nest egg if not managed properly.

The cost of health care and the potential of needing long-term care at some point are important parts of retirement planning. They can be expensive variables that affect the amount of money you’ll need. So health-related expenses are well worth considering. 

Planning for health care expenses in retirement 

This can be a big expense in retirement, especially if you retire before age 65 and don’t yet qualify for Medicare. But Medicare doesn’t cover everything. Most hearing, dental and vision expenses are excluded, and you’ll still be on the hook for deductibles and other costs—including premiums. Doctor visits alone, which are covered under Medicare Part B, will set you back at least $185 per month. 

Planning for long-term care needs 

People don’t want to imagine themselves or their spouses developing a prolonged health issue, but it’s something to think about when planning for the future. If you end up needing in-home care or transitioning to a nursing home or assisted living facility, will your savings be enough to cover the expense?  

It could deplete your nest egg, or the burden could fall to your loved ones since most long-term care costs are not covered by Medicare. These costs can vary widely—and majorly disrupt your retirement plan if you aren’t prepared. 

Legacy planning goes hand in hand with long-term wealth management. If you hope to leave something behind for your loved ones, a legacy plan can help you be more deliberate about achieving that goal. That can include everything from making charitable donations to funding a portion of your grandchildren’s education.  

Being intentional about your plans can make for a more comfortable retirement. Otherwise, you might create an overly restrictive income plan out of fear that you’ll deplete assets you’d like to leave to your heirs.  

Another risk is overspending and having little left over for legacy goals or your own long-term care needs, which can create a financial hardship for loved ones. Deliberate planning that is guided by a financial advisor can help you to strike the right balance. 

Permanent life insurance can be a valuable resource here. In addition to providing access to cash that can help supplement your retirement income, these policies also offer a lifetime death benefit that can be the center of your legacy plan. 

Retirement planning is often centered on income. While that’s certainly vital, it can be easy to overlook the emotional impact that tends to accompany such a major life transition. It’s an especially important consideration if you and your spouse are retiring at different times.  

There are social and mental health factors at play as well. Stepping away from your career after working for decades can be a huge adjustment that affects your sense of identity and purpose. Below are some key questions to ask yourself as you enter this next phase of life: 

Conversation starters with an advisor

Your savings target should be shaped by your unique goals and financial situation. That’s why our advisors ask deep questions to get to know you. No matter what your future looks like, having a healthy balance of income sources can help set you up for a comfortable retirement. Here are some questions you may want to ask an advisor.