Determining your budget in retirement | BlackRock (2024)

FAQs

Determining your budget in retirement | BlackRock? ›

To calculate your retirement budget, it's best to first calculate your expected average costs per month. As you estimate what your spending in retirement might be, it can be easy to underestimate your expenses. To help avoid being caught short unexpectedly, start now by making a list of your anticipated costs.

One example is the $1,000/month rule. Created by Wes Moss, a Certified Financial Planner, this strategy helps individuals visualize how much savings they should have in retirement. According to Moss, you should plan to have $240,000 saved for every $1,000 of disposable income in retirement.

The 3% rule in retirement says you can withdraw 3% of your retirement savings a year and avoid running out of money. Historically, retirement planners recommended withdrawing 4% per year (the 4% rule). However, 3% is now considered a better target due to inflation, lower portfolio yields, and longer lifespans.

The 25x rule entails saving 25 times an investor's planned annual expenses for retirement. Originating from the 4% rule, the 25x rule simplifies retirement planning by focusing on portfolio size.

Housing. Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees. More specifically, the average retiree household pays an average of $17,472 per year ($1,456 per month) on housing expenses, representing almost 35% of annual expenditures.

On a fortnightly basis, a single person needs roughly $1,954.57, while a couple needs around $2,784 for a comfortable retirement. A modest retirement, which allows for only basic activities although is better than relying only on the Age Pension, is estimated at $32,915 for singles per year, and $47,387 for couples.

If you withdraw $20,000 from the age of 60, $500k will last for over 30 years. Retirement plans, annuities and Social Security benefits should all be considered when planning your future finances. You can retire at 50 with $500k, but it will take a lot of planning and some savvy decision-making.

Top the amount with 401(k) savings, living on $3,000 a month after taxes is possible for a retiree. For those who only have social security benefits to rely on, there are many places where they can retire on their checks both in the USA and around the world.

Average Monthly Retirement Income

According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

What is the golden rule for retirement? ›

The golden rule of saving 15% of your pre-tax income for retirement serves as a starting point, but individual circ*mstances and factors must also be considered.

According to the Federal Reserve's latest Survey of Consumer Finances, only about 10% of American retirees have managed to save $1 million or more.

Around the U.S., a $1 million nest egg can cover an average of 18.9 years worth of living expenses, GoBankingRates found. But where you retire can have a profound impact on how far your money goes, ranging from as a little as 10 years in Hawaii to more than than 20 years in more than a dozen states.

Most people in the U.S. retire with less than $1 million. $500,000 is a healthy nest egg to supplement Social Security and other income sources. Assuming a 4% withdrawal rate, $500,000 could provide $20,000/year of inflation-adjusted income. The 4% “rule” is oversimplified, and you will likely spend differently.

“With a nest egg of $100,000, that would only cover two years of expenses without considering any additional income sources like Social Security,” Ross explained. “So, while it's not impossible, it would likely require a very frugal lifestyle and additional income streams to be comfortable.”

By age 40, you should have accumulated three times your current income for retirement. By retirement age, it should be 10 to 12 times your income at that time to be reasonably confident that you'll have enough funds. Seamless transition — roughly 80% of your pre-retirement income.

One rule of thumb is that you'll need 70% of your annual pre-retirement income to live comfortably. That might be enough if you've paid off your mortgage and you're in excellent health when you retire.

Try the 50/30/20 rule as a simple budgeting framework. Allow up to 50% of your income for needs, including debt minimums. Leave 30% of your income for wants. Commit 20% of your income to savings and debt repayment beyond minimums.

Many financial planners use a replacement ratio of 75% of your current salary. To set a target goal for this replacement ratio, a good estimate is to multiply your monthly salary by 200. The total you get is the amount you'd need if you retired today at a 75% replacement ratio.

The 70% rule for retirement savings says your estimated retirement spending will be 70% of your pre-retirement, post-tax income. Multiplying your post-tax income by 70% can give you an idea of how much you may spend once you retire.