About Retirement

That might be enough if your mortgage is paid off and you are in excellent health when you leave your employer for good. But if you plan to vacation around the world, build your dream home, or get that RV you’ve always wanted, you may need substantially more than 70% of your pre-retirement annual net salary.

It’s critical to be realistic and make realistic estimates about what kind of expenses you will have in retirement. Understand how you want to live in retirement and how much it will cost. These estimates are important when it comes time to figure out how much you need to save in order to afford your retirement.

Full retirement age had been 65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until it reaches 67 for people born after 1959. By the way, the earliest a person can start receiving Social Security retirement benefits will remain at age 62 according to the Social Security Administration.

Life expectancy in the USA rose in 2012 to 78.8 years according to USA Today.

With this in mind, you will need $28,000 each year for 11.8 years (age 78.8 – age 67 = 11.8 years) in order to maintain your current lifestyle during retirement.

So, by the age of 67, you should have $330,400 in retirement savings ($28,000 * 11.8). This is considering you won’t invest your money after reaching age 67. Most people will keep their money “close to home” in a money market savings account, money market CD, or municipal bonds that are very secure. These investment vehicles offer extremely low returns but are among the safest ways to continue grow your nest egg during your retirement years.

Health care is often the biggest expense in retirement as well as the hardest expense to predict. According to a survey released by Merrill Lynch and the research firm Age Wave, health care expenses were the top financial concern in retirement for people over the age of 50. Survey respondents said they were more worried about health care costs than they were about Social Security or the risk of running out of money.

Another finding from the survey is that more than half of retirees retired earlier than they expected, and the number one reason for their early retirement was a health-related problem.

The study found that, regardless of wealth level, health care expenses rank as the most pressing financial concern in retirement (41 percent), exceeding even the fear of outliving one’s money (29 percent). In fact, people age 50+ are nearly twice as worried about the cost of retirement health care as they are about the actual quality of care they might receive.

“Health challenges can be a double threat to retirement financial security,” said David Tyrie, head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch. “Between unpredictable and costly health care expenses and unexpected early retirement due to health problems, planning ahead can be confusing and overwhelming. People are increasingly seeking guidance to help them make informed decisions, for themselves and their families.”

The majority of retirees surveyed (55 percent) retired earlier than they had expected, while 38 percent retired when they planned to, and just 7 percent later than they expected. Although early retirement has often been equated with financial success, today’s retirees age 50+ cite health problems as the top reason (37 percent).

According to the study, people are more concerned about the financial impact of a spouse’s serious illness (66 percent) than they are about their own illness (62 percent). Women, who are likely to live longer and more apt to spend down savings on their spouse’s health care, are even more concerned than men (70 percent vs. 62 percent) about the financial impact of their spouse developing a serious health problem. The study also finds that many people age 50+ anticipate they would help other family members facing health problems and health care costs. This may be one reason why people’s concerns about how to plan for health care costs include potential health problems of their children (50 percent), parents (32 percent) and siblings (29 percent).

You may want to spend some time with online retirement calculators to determine whether you are on target for your retirement goal (or what your goal should be in some cases.)