Retirement Savings: How Much Money You Need Every Year Past Age 65

The math involved in financially planning for your future retirement can be overwhelming, especially when considering how long you could need those funds to last.

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The amount you need to save for each year past the technical full retirement age of 65 depends on several factors, including your lifestyle, location, retirement benefits and general savings plans. For instance, a luxurious way of living requires will require more saved that one that’s more frugal.

To put this in perspective, GOBankingRates conducted a study to determine how much retirees would need saved to live a comfortable lifestyle in every state.

Here are a few key takeaways from some popular retirement destinations.

• Florida retirement: The minimum recommended savings is $736,588 for 20 years of retirement, $920,736 for 24 and $1,105,989 for 30 years.

• California retirement: The minimum recommended savings is $1,145,940 for 20 years of retirement, $1,432,425 for 24 and $1,720,630 for 30 years.

• Arizona retirement: The minimum recommended savings is $840,661 for 20 years of retirement, $1,050,826 for 24 and $1,262,253 for 30 years.

Keep reading for a closer look at the different expenses you’ll need to factor into your retirement budget.

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Your Cost of Living in Retirement

Once you reach age 50 or older, your retirement planning goes into hyperdrive, with or without a financial advisor. After 65, you truly need to factor in any other sources of income, such as your full Social Security benefits, pensions or part-time work, and balance that with your spending habits.

To calculate your annual living expenses, consider inflation across the board which includes housing, food, utilities, transportation, healthcare, insurance and any debts. Inflation reduces the value of money over time, meaning you’ll need more money each year to buy the same things. A common approach to adjust for increasing inflation rates is to use a 2% to 3% uptick, but this can vary.

A general rule of thumb is that you will need around 70% to 80% of your pre-retirement annual income to maintain your current lifestyle in retirement. However, this percentage of your income is just a starting point, and you should adjust this percentage based on your specific circumstances and plans.

Though you’ll need to plan for unexpected expenses, such as home repairs or emergencies, the following is about what you can expect to pay for standard expenses:

• Healthcare: As you age, healthcare costs can increase significantly, and Medicare, which you become eligible for at 65, does not cover all health expenses. There are premiums and out-of-pocket costs involved. In Arizona, the average annual cost of healthcare is $7,178.

• Food and groceries: Everyone has to eat, so there’s no way around this necessary expense. A retiree living in Florida will spend about $4,783 a year on groceries alone.

• Transportation: If you plan on retiring in a location that doesn’t have public transportation or is easily walkable, then you’ll have to pay for things such as car maintenance, gas and more. In California, you can expect to pay $6,283 a year on transportation costs.

• Utilities: Depending on where you live, and your heating and cooling needs, your utility bills can vary widely. For example, if you live in a colder climate like Michigan, you might pay upwards of $4,236 a year in retirement.

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Consider Your Expected Lifespan

While it’s not fun, predicting your expected lifespan is crucial in retirement planning. The average life expectancy has been increasing, and many financial planners suggest planning for a retirement that could last 20 to 30 years past the age of 65. This means if you retire at 65, you should plan your finances to last until at least 85 or 95.

Investment Strategy vs. Withdrawal Schedule

Determine a safe withdrawal rate from your savings and investments. A commonly used guideline is the 4% rule, which suggests withdrawing 4% of your retirement savings in the first year and adjusting for inflation in subsequent years.

Also, consider the growth of your investments during retirement and what potential annual returns will realistically give you. The right investment strategy can help your savings keep up with or outpace inflation.

Final Take To GO

The bottom line is that your financial situation and the economy will change over time. This means your plan need to be readjusted each year in your retirement to stay on track. The amount of money you need each year after age 65 varies widely based on individual circumstances.

However, by understanding your retirement goals and calculating your expenses before retirement, you’ll feel more secure once you do retire. It’s better to overestimate than underestimate your retirement savings needs. Regular reviews and adjustments to your plan will help ensure a comfortable and financially secure nest egg.

Methodology: To find out exactly how much you need to retire in your state, GOBankingRates found the annual cost of expenditures for a retired person in each state by multiplying the 65 year and older expenditures from the Bureau of Labor Statistics’ 2022 Consumer Expenditure Survey by the cost of living index for each state from the Missouri Economic Research and Information Center’s Q3 2023 cost of living series. To find how much money a retired person would need to save, we divided each state’s annual expenditures, minus the annual Social Security income as sourced from the Social Security Administration’s Monthly Statistical Snapshot, March 2022, by 0.0333%, 0.04%, and 0.05% assuming 20, 25 and 30 years of retirement respectively. All data was collected and is current as of January 8, 2024.

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This article originally appeared on GOBankingRates.com: Retirement Savings: How Much Money You Need Every Year Past Age 65