How Much Money Will You Need in Retirement?

Who doesn’t have a retirement dream—a someday? It may be as simple as sleeping late or riding your bike on a sunny afternoon, or as daring as jumping out of a plane at age 90. Living your someday the way you want means having a roadmap now. And that means understanding your retirement goal.

Put simply, your retirement goal is the percentage of your pay that you want to replace in retirement. UC’s Retirement Review assumes that you’ll need to replace 80% of your current pay in retirement. This is a common benchmark, but it may not be right for you.

How much money will you really need?

How much will you really need? A lot depends on how you want to live in retirement. Make sure your retirement plan considers these factors.

How long you live Where you live What you do

People are living longer. You should plan for a retirement that lasts 30 years or more.

Where you live affects your cost of living and access to health care. Thinking of moving to a different state? Include tax rates in your planning. If you plan to stay put, know how your home equity factors into your plans.

The early stages of retirement can be a costly time in one’s life. Many people overestimate how much they’ll be able to work in retirement, and underestimate how much they’ll spend. Take a hard look at both fronts.

Your health Your taxes Your purchasing power

For many, health care is among the largest expenses in retirement.

When you retire from UC, you may be eligible to continue your UC-sponsored medical, dental, vision, accidental death and dismemberment, and legal coverage, so make sure you know what’s required to qualify for this coverage.

And remember that, as life expectancies increase, so does the potential need for long-term care. Thinking of buying long-term care insurance? Factor the cost of premiums into your plans.

Taxes can significantly reduce the amount you have available to spend in retirement. Remember that some of your retirement income may come from UC’s pension, 403(b), 457(b) and DC Plans. Most, if not all, of the income from these accounts is subject to income taxes.

The income from your non-retirement investments will be taxed, too. Income from taxable bonds is taxed at ordinary income tax rates, while income from municipal bonds may be exempt from federal income tax. Long-term capital gains and qualifying dividends are taxed at special capital gains rates.

When prices rise (also known as inflation) your purchasing power falls, and vice versa. That means inflation can eat away at your spending power.

An annual inflation rate of 3%—the average since 1926—will cut the value of your benefit in half in 24 years.

Of course, you can’t control the economy. But investing at least a portion of your money for growth can help you outpace inflation.

Model your retirement goal

Once you know your retirement goal, you can adjust your Retirement Review to display it. Here's how:

  • From the home page, click GET RETIREMENT REVIEW under the WHAT DO YOU WANT TO DO TODAY menu, and sign in to view your Retirement Review.
  • Click the YOUR MODELED RETIREMENT READINESS INFORMATION tab.
  • Select CHANGE YOUR RETIREMENT AGE OR PAY.
  • Enter the percentage of pay you want to replace when you retire.
  • Click SAVE SESSION.

 

* "Lump-sum payment or monthly pension?" Fidelity Viewpoints, February 1, 2017 

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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