How much money do you need each year after you turn 65?

Mathematics related to financial planning for the future pension can be overwhelming, especially considering how long you will need these funds.

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The amount you need to save for each year after you reach the technical full retirement age of 65 depends on several factors, including your lifestyle, location, retirement benefits and overall savings plans. For example, a luxurious lifestyle requires more savings than one that is more frugal.

To put things into perspective, GOBankingRates conducted a study to determine how much retirees would need to save to maintain a comfortable lifestyle in each state.

Here are some key takeaways from some popular retirement destinations.

Retirement in Florida: The minimum recommended savings are $736,588 for 20 years of retirement, $920,736 for 24 years and $1,105,989 for 30 years.
California retirement: The minimum recommended savings are $1,145,940 for 20 years of retirement, $1,432,425 for 24 years, and $1,720,630 for 30 years.
Retirement in Arizona: The minimum recommended savings are $840,661 for 20 years of retirement, $1,050,826 for 24 years and $1,262,253 for 30 years.

Read on to take a closer look at the different expenses you will need to factor this into your retirement budget.

Your costs of living in retirement

When you reach the age of 50 or older, your pension planning goes into hyperdrive, with or without a financial advisor. After age 65, you really need to factor in any other sources of income, such as full Social Security benefits, pensions, or part-time work, and balance that with your spending habits.

To calculate your annual living expenses, consider: inflation everything that includes housing, food, utilities, transportation, health care, insurance, and any debts. Inflation reduces the value of money over time, which means you will need more money every year to buy the same things. A common approach to adjusting for rising inflation rates is to apply a 2-3% increase, but this can vary.

A general rule of thumb is that you’ll need about 70% to 80% of your pre-retirement annual income to maintain your current lifestyle in retirement. However, this percentage of your income is just a starting point and you should adjust this percentage depending on your specific circumstances and plans.

While you’ll need to plan for unexpected expenses like home repairs or emergencies, here’s what to expect for standard expenses:

Healthcare: As you age, health care costs can increase significantly, and Medicare, for which you become eligible at age 65, does not cover all health care expenses. This involves premiums and running costs. In Arizona, the average annual cost of health care is $7,178.
Food and groceries: Everyone has to eat, so there is no way around this necessary expense. A retiree living in Florida will spend approximately $4,783 a year on groceries alone.
Transport: If you plan to retire in a place that doesn’t have public transportation or is easily walkable, you’ll have to pay for things like car maintenance, gas, and more. In California, you can expect transportation costs of $6,283 per year.
Tools: Depending on where you live and your heating and cooling needs, your utility bills can vary significantly. For example, if you live in a colder climate like Michigan, you could be paying more than $4,236 a year into retirement.

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Take life expectancy into account

While it’s not fun, predicting your life expectancy is crucial in retirement planning. Life expectancy is rising and many financial advisors suggest planning for a retirement that could last 20 to 30 years after age 65. This means that if you retire at age 65, you should plan your finances to last at least 85 or 85 years. 95.

Investment strategy and payout schedule

Determine a safe withdrawal rate from your savings and investments. A commonly used guideline is the 4% rule, which suggests withdrawing 4% of your retirement savings in the first year and taking inflation into account in subsequent years.

Also consider the growth of your investments in retirement and the realistic impact of the potential annual return. The right investment strategy can help your savings keep pace with or exceed inflation.

The ultimate takeaway

The bottom line is that your financial situation and the economy will change over time. This means your plan needs to be adjusted every year in retirement to keep it on track. The amount of money you need each year after age 65 varies greatly depending on your individual circumstances.

However, if you understand your retirement goals and calculate your expenses before you retire, you will feel more secure once you retire. It’s better to overestimate than underestimate your retirement savings needs. Regular reviews and adjustments to your plan will help ensure a comfortable and financially secure place to live.

Methodology: To find out exactly how much you need to retire in your state, GOBankingRates calculated the annual cost of retiree spending in each state by multiplying the spending of people 65 and older from the Bureau of Labor Statistics’ 2022 Consumer Spending Survey by the ratio cost of living for each state in the Missouri Center for Economic Research and Information’s cost of living series for the third quarter of 2023. To get an idea of how much money a retiree would need to save, we broke down each person’s annual expenses state minus annual Social Security income according to the Social Security Administration’s March 2022 Monthly Statistical Summary by 0.0333%, 0.04% and 0.05%. assuming 20, 25 and 30 years of retirement respectively. All data has been collected and is current as of January 8, 2024.

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This article originally appeared on GOBankingRates.com: : Retirement savings: How much money you need each year after age 65