Use this framework from Merrill to help you build a comfortable nest egg before you retire.
Ask three financial experts how much you need to save for retirement, and you might get three different answers: a specific number, say $3 million; a figure based on future spending, such as enough to draw down 80% to 90% of your preretirement income every year; or a simple formula, like saving 12 times your preretirement salary.
The real answer is more complicated. To get an idea of how much you may need for retirement, consider the many factors that could affect your future spending power, such as inflation, rising healthcare costs and a potential reduction in Social Security benefits if Congress does not act to keep the program solvent. The good news is that provisions of the SECURE Act 2.0 offer powerful new ways to save.
Even amid these uncertainties and new opportunities, it is important to have a ballpark estimate of how much money you will ultimately need. To identify a target that fits your goals and priorities, work through these four steps with your advisor.
1. Picture your perfect retirement.
Having a clear idea of the lifestyle you want in retirement will help you estimate how much it could cost. Start by thinking about your essential expenses, such as a roof over your head, food on the table and healthcare. Then consider important expenses, like dining out or traveling. Offering financial support to aging parents or adult children might also be a priority.
Finally, consider any aspirational goals, like purchasing a second home. Keep in mind that some essential expenses — such as healthcare — may increase in retirement, while your retirement lifestyle may shift as you age. According to a Retirement Confidence Survey from the Employee Benefits Research Institute and Greenwald Research, 45% of retirees say their expenses are higher than they predicted.
Once you estimate your future spending, revisit it as your plans change.
2. Ask yourself: Could I outlive my money?
“There are multiple personal variables to weigh when starting to think about how much you will need to save for retirement,” said Lauren Galvin, sales manager, Personal Retirement, Bank of America. Your current age may be among the most important but also consider how long you expect to live. In a survey by Corebridge Financial and the Longevity Project, 54% of Americans say they aim to live to 100. In that case, retirement may last 30 years or more.
You also may find that you end up retiring earlier (or later) than expected based on unforeseen circumstances. To help ensure that your money lasts in retirement, it is important to plan for all possibilities.
3. Review how much you already have saved.
With a target annual budget in mind, you and your advisor can look over your anticipated sources of retirement income (retirement accounts, Social Security, pensions, annuities, rental income, an inheritance or sale of a business). Your retirement accounts may be one of your biggest sources, and you could be surprised by how much — or how little — even a large balance could provide over a long retirement.
Your advisor can estimate how your assets might look in the future, given your savings rate and investment allocation, factoring in the risk of inflation and market performance.
4. Plan ahead to close the gap.
You and your advisor can talk about any adjustments you might need to make. If you are in your mid-30s, you may have 30 years to build assets, but if you are relatively close to retirement, a first step may be figuring out what you are spending today and calculating whether you are on track to support that in retirement.
Do not get discouraged if you find that you are behind. There are ways you can catch up. Be sure to max out tax-advantaged retirement plans, such as a 401(k) or IRA, and take advantage of any employer match. If you are 50 or over, you may be eligible for additional catch-up contributions. A provision of the SECURE 2.0 Act that went into effect in 2025 allows those who are 60 to 63 to save even more.
With a high-deductible health insurance plan, you are eligible to contribute pre-tax dollars to a health savings account, which can be rolled over for retirement expenses.
An advisor may also suggest revisiting your investment strategy. “Asset allocation and thoughtful, goals-based portfolio management are two things that can potentially steer you to a better retirement outcome,” notes Galvin.
Remember: Retirement is a journey. You can change course if you need to. But by planning ahead, you will have a far better chance of living the life you truly want.
For more information, contact Merrill Lynch Wealth Management Financial Advisor Jeffery D. Price of Price & Associates at [email protected] or (817)-410-4940.
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