So you want to live off $100,000 a year in retirement? You may be wondering how big your portfolio needs to be—in addition to your Social Security income—to net you that amount.
Of course, the amount you’ll be able to retire on will be affected by market returns, inflation, your spending habits and even life circ*mstances. But doing some basic math can help with your retirement plan, such as deciding whether you can afford to retire before your full retirement age.
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If you’re aiming for an annual income of $100,000 in retirement, that works out to about $8,333 a month. You can deduct your Social Security benefit from that amount—as well as any other sources of retirement income, such as a pension, annuity or royalties. But you’ll need to make up the rest from your retirement savings.
Here’s a high-level overview of how to make the numbers work (but it may be a good idea to talk to a financial planner about your specific situation).
Doing the math
You can have many different sources of income during your retirement, like a pension or a side hustle, but for this example we'll assume you'll only have Social Security and an investment portfolio to provide for you. There are many online retirement planning tools that can also give you a more personalized look at how much to set aside during your working years.
First, Social Security. You can find out how much you can expect to receive from the program by creating a my Social Security account. Your monthly check will depend on several factors, such as your full retirement age, whether you claim your benefit earlier or later than your full retirement age (around age 67), and how much you contributed during your top 35 working years.
You can begin claiming your benefit as early as age 62 or as late as age 70 (the amount is adjusted in monthly increments). If you claim your benefit at 62, you’d receive 70% of your benefit. If you claim at 70, you’d receive a top-up to 124%.
The average Social Security benefit, as of January 2024, is $1,907 a month, according to the SSA. So that's what we'll use in this calculation. If you were to retire today, this is what you could expect based on the average benefit and your age:
age 62: $1,335 a month, or $16,020 annually (70% of your benefit)
age 67: $1,907 a month, or $22,884 annually
age 70: $2,365 a month, or $28,380 annually (124% of your benefit)
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Now we'll subtract those amounts from the $100,000 income goal to calculate how big your balanced retirement portfolio would need to be. For example, if you retire at age 62 and collect $16,020 annually from Social Security, you'll need around $84,000 in retirement income from your investment portfolio every year. According to the popular 4% guideline, If you withdraw 4% from it every year to spend (adjusted after the first year for inflation), you can expect your retirement account to support you for 30 years. Remember, these are rough estimates and not a guarantee.
So, if you’re aiming for $100,000 a year in retirement and also receiving Social Security checks, you’d need to have this amount in your portfolio:
age 62: $2.1 million
age 67: $1.9 million
age 70: $1.8 million
While this is a simplistic example, it demonstrates that if you can hold off on claiming your benefits until your full retirement age or later, you’ll get a higher benefit—plus you’ll have more time for your savings to grow.
Other factors to take into account
You’ll also need to adjust your retirement income goal for inflation. For example, assume inflation is 2.5% a year. If you’re 20 years away from retirement, that $100,000 adjusted for inflation works out to about $164,000. And if you’re five years away from retirement, $100,000 works out to about $113,000. (You can use an inflation calculator to crunch the numbers.)
Keep in mind also that if you withdraw money from a 401(k) or traditional IRA, that money is taxable income. Also, investment performance is unpredictable; market ups and downs could influence whether or not you want to pull money out at a particular point in time.
Do you actually need $100,000?
Many financial planners say you’ll need about 80% of your pre-retirement income to sustain your current lifestyle in retirement. That’s because you won’t necessarily have as many expenses as you did earlier in life. For one thing, you no longer have to set aside a portion of your wages for retirement savings. And you’ve likely paid off your mortgage (or are close to it).
So, if you currently earn $100,000 a year, 80% of your pre-retirement income works out to $80,000. So, assuming you're receiving monthly Social Security checks and following the 4% rule, if you’re aiming for $80K a month in retirement, you’d need to have this amount in your portfolio:
age 62: $1.6 million
age 67: $1.4 million
age 70: $1.3 million
But 80% isn’t a magic number that will work for everyone. If you downsize to a smaller home or move to another state with a lower cost of living, it’s possible to live on even less. On the other hand, if you live in a high-cost city or want to travel the world, then you may need to save more.
While this is a simplistic example, it does show that it’s possible to retire with $100,000 a year—though it may require working a few years longer than anticipated or ramping up your savings early in your career.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
