FAQ: Retirement Income—Can I Afford to Retire?
Retirement isn't what it used to be
Americans nearing retirement age today don't think of retirement in the same way as earlier generations have. Many factors, including advancements in health care and longer life expectancies, have turned retirement into an active lifestyle—one that is less about slowing down and more about changing course.
The "25 times" rule of thumb
According to the Schwab Center for Financial Research, if your savings are roughly 25 times larger than the amount you will need to withdraw from your retirement portfolio in your first year of retirement, you should be in good shape to retire.1
For a more accurate and personal estimate, try our Retirement Savings Calculator.
Here's an example of the "25 times" rule:
|Example: Estimate Your Needs|
|Total projected annual expenses in first year of retirement (including taxes)||$90,000|
|Minus predictable income (e.g., Social Security, pension, rental income)||($40,000)|
|= Annual amount you’ll need to withdraw from your portfolio||$50,000|
|Retirement portfolio target goal:||$1,250,000|
This simple rule of thumb is based on the assumption that your retirement will last 30 years. Obviously, your situation may be different. For example, if you're planning an early retirement that is likely to last longer than 30 years, your portfolio should be larger.
Look at what you have and estimate what you need
To get a better picture of whether you're on track to retire, use our Retirement Savings Calculator. In a few simple steps, the calculator will help you better understand what your retirement savings goal should be and how much you need to save each month in order to reach that goal.
By making adjustments to the numbers you've entered into the calculator, you'll see how small changes to your retirement age, your annual savings contributions, and your annual spending can have a big impact on how long your savings will last.
Short on savings? Consider these strategies
Save more aggressively
If you're just a few years away from retirement, try to set aside more money each month for savings. Small sacrifices now can translate into more income in retirement.
Stay at your job for a few more years and continue your contributions to your savings. A couple more years can make a big difference.
Scale back your hours instead of retiring completely. Some employers, particularly in today's economic climate, welcome flexible schedules and other tactics that help reduce their payroll costs.
Take a part-time job or start a small business. Look for opportunities in fields that use your existing skills or that you have a passion for.
Spend less in retirement
Downsize to a smaller home, perhaps in a community or locale with a lower cost of living.
Move closer to family or friends whom you plan to visit often, to cut down on travel expenses.
If your retirement plans include vacation travel, take fewer trips each year or choose destinations that are closer to home. And look for ways to save on lodging, like trading houses instead of paying for hotels.
Eat out less often. If you like to socialize with friends, invite them over instead of going out to dinner.
Choose an income solution that's right for you
If you're on track to retire, you'll want to do all you can to make sure your retirement savings generate a steady income throughout your retirement. There are a few things to consider, and what's best for you depends on how much savings you have, how much income you'll need, and when you'll need it.
Get ideas from others
A good way to explore your options is to look at the retirement decisions other people have made. Of course, no one is exactly like you, but seeing how others have done it is a good way to get ideas for your own retirement.
1. Source: "Is the 4% Rule Still Appropriate?" By Rob Williams, August 5, 2014.
2. The consultation is available only to clients with at least $25,000 in assets at Schwab or prospects with at least $25,000 in assets available to bring to Schwab. Individualized recommendations are available only to Schwab clients and are limited to assets held in a Schwab retail brokerage account. Information provided to prospects, or pertaining to assets held outside of Schwab, as part of the consultation are examples of the kinds of recommendations available on assets held at Schwab; these examples do not constitute recommendations, solicitations, or investment advice.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.
The type of securities mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. Data contained here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Examples provided, including statistical simulations, are provided for illustrative purposes only and are not intended to imply future results you should expect to see. Past performance is no guarantee of future results.