Many Americans are continuing to work through their retirement years because they don’t have enough retirement savings to live comfortably. Starting at age 62, social security payments can help, but oftentimes the social security payments aren’t enough to cover living expenses. Right now, the maximum monthly social security payment you could earn at age 62 is about $2,600 a month.
So, it is pretty important to save money for retirement rather than just depending on social security. How much money will you need? Let’s start by looking at the average life expectancy. Today, in the U.S., the average life expectancy is 76. To provide a little padding, you might want to ensure you have enough retirement money to live until 80. If you retire at age 64, you will need about 16 years of savings combined with social security.
First, determine how much social security you will earn each month. Then, determine what your monthly expenses will be in retirement. Will you cut down on expenses or do you plan on spending more on travel, entertainment, etc. once you stop working? Then take your monthly expenses and multiply them by 12 to get one year’s worth and then again by 16 to get 16 years’ worth. How much do you have? Here’s an example: Julia is single and has no dependents. She will get $2,000 a month in social security at age 64. Her projected monthly expenses are about $3,800 a month in retirement. So she will need to save up for $1,800 a month (or $21,600 a year) times 16 years. This is $345,600. This seems like a lot of money but if she works for 40 years, she would need to save about $700 a month. Also, keep in mind that if she starts saving early in her career, her early savings can be invested and can grow a lot before she reaches retirement.
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