How Much Do I Need to Retire?

According to the 2023 Northwestern Mutual Planning & Progress Study, the average person in their 40s has $77,400 saved for retirement. People in their 60s have $112,500 saved for retirement. Is that how much you will need for steady income throughout retirement? Well, it depends entirely on your situation.

To answer the question about how much you’ll need in retirement, you need to get a sense of what you want to do after you stop working and what that might cost. Essentially, you need a retirement budget. Do you envision downsizing your home? Or are you planning to buy a second place? Will you spend your months traveling? Or are you planning to stay closer to home and volunteer your time?

Ultimately,  will depend on how much you spend each year—and how many years you spend in retirement. From there, you can begin to work backward to get a sense of how much you might need to retire.

Once we have a sense of what you might need, it’s important to look at your entire financial picture as we build a plan for how you’ll generate income. Let's look at common sources used to build a retirement income as well as some common risks that can threaten your retirement nest egg.

If you’ve been saving for retirement for many years, you likely have investments, which are a great way to grow your money over time. But as you approach retirement, you may find you want additional financial options to diversify your sources of income. A Northwestern Mutual financial advisor can help you leverage a diverse set of financial options to help you better manage risks to your retirement income over time. Properly managing these risks—like market volatility, the impact of taxes and inflation—can help you get more out of your retirement savings.

If you knew that markets were always going to increase, generating income with your investments would be stress-free.

In reality, variables such as market volatility and your own longevity pose risks to your retirement income. The good news is that when you use a range of financial options (like the tools above), you can mitigate the impact some common risks like these can have on your savings. We’ll take a deeper dive into how to plan for these risks shortly, but here’s a quick checklist of potential situations that could impact your retirement income:

If you know exactly how long you’ll live, it would be much easier to plan your income in retirement. While no one knows exactly what the future holds, 40 percent of Gen Z and Millennials expect to live to be 100, according to the 2023 Northwestern Mutual Planning & Progress study.

For a man who is already 65, the average life expectancy is nearly 83 according to the Centers for Disease Control and Prevention. Women who are 65 live to be 85 on average. That is, of course, good news—you have many years to enjoy life without being tied to work. And that’s just the average. Many people live even longer. And that’s the risk.

What happens if you live longer than expected? Will you deplete your savings too soon? Or will you spend less than you might otherwise in the early years of retirement because you aren’t sure?

This is where income annuities and other guaranteed streams of income enter the picture. When paired with Social Security (and a pension if you have one), income annuities can help you create a guaranteed stream of income that will last for as long as you live—even if that’s a very long time. Consider it a strong foundation for a comfortable retirement income

Investments are an important part of retirement income because the growth they can offer over time is critical to keep up with rising prices (which is another risk we’ll get to). But the potential upside of investments comes with a well-known downside: Markets are volatile.

There’s a decent chance that you’ll experience several market corrections and a bear market or two during your retirement. 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. Doing so can take a large bite out of your savings, as you’ll have fewer stocks to recover when the markets tick back up.

This is where the more stable parts of your financial plan come into play. Social Security and annuities are guaranteed and will continue to provide you income through a downturn. Meanwhile, a cash reserve and the guaranteed cash value of permanent whole life insurance can help you create the income you need. This allows you to maintain your lifestyle while you wait for your stocks to recover.

Staying ahead of inflation in retirement

Inflation is a reality over time. That means that the amount you can buy with a dollar in the first year you retire will decline as the years go by. It’s natural to want to keep your money safe once you retire, but too much safety can also devalue your nest egg because of inflation. The best way to help achieve a steady income despite inflation is to keep a portion of your retirement savings invested. Investments have historically been one of the best ways to grow your money over time.

Managing taxes in retirement

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

The cost of health care and the potential of needing long-term care at some point in retirement can be big-ticket variables that will affect the amount of money you will need. That’s why it should be something you consider when planning for retirement.

Planning for health care expenses in retirement

This can be a big expense in retirement, especially if you retire before qualifying for Medicare. However, Medicare doesn’t cover everything. Hearing, dental and vision expenses are excluded, and you’ll still be on the hook for deductibles and other costs—including premiums. Doctors’ services alone, which are covered under Medicare Part B, will set you back at least $164.90 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 retirement planning. If you end up needing in-home care or transitioning to a nursing home or assisted living facility, will your savings be robust enough to cover the expense? If not, the burden could fall to your loved ones, as most long-term care costs are not covered by Medicare. The cost of care can vary widely, but it can be a significant expense which disrupts your retirement plan.

Legacy planning goes hand-in-hand with long-term wealth management. If you have a goal to leave something behind, a legacy plan can help you be more deliberate about achieving your goal.

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 otherwise like to leave behind. Others may overspend and have little left over for their own long-term care needs, which can create a financial hardship for loved ones. Deliberate planning allows you to strike the right balance.

Permanent life insurance can be a valuable resource. In addition to the access to cash value to supplement your retirement income, the lifetime death benefit is often the center of a legacy plan.

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

Whether you and your spouse are retiring at the same time or different times, it’s important to have conversations early and often about the transition. Make sure you’re on the same page about your vision for each other’s retirement.

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 retirement savings target should be shaped by your unique goals and financial situation—but setting yourself up for a comfortable retirement is often best achieved by having a healthy balance of income sources. Here are some questions you may want to ask an advisor.