Living your best retirement: Calculate how much income you’ll need

Photo of a couple who has calculated how much income they will need in retirement.

Everyone has their own idea of what retirement looks like. Maybe it includes travel. Or buying a vacation home. Or spending more time with grandkids. Making plans for the life you want should also include a plan for your retirement savings so it can go the distance.

With retirement on the horizon, now is a good time to calculate how much income you’ll need.

Consider these questions to calculate how much income you may need in retirement

What are your monthly expenses?

This includes 2 categories: needs (the essentials) and wants (the fun stuff). Your needs are things you can’t live without or are obligated to pay, like utilities, groceries, and a mortgage. Wants are things that are nice to have, like travel, dinners out, and personal splurges.

What you consider a need versus a want depends a lot on the lifestyle you live now. Do you want to continue this lifestyle in retirement, or do you plan to make changes? Be idealistic—and realistic—about your vision for the future.

How much will it cost?

Estimate your monthly retirement costs based on what expenses you pay for now—but assume that it will change once you retire. For example, your health care costs may go up. Or your housing costs may go down if you pay off your mortgage.

There’s also inflation to consider. Groceries, gas, and most things you buy will cost more in 20 years than they do now.

When do you plan to retire?

And the bigger question: When do you plan to start taking withdrawals from your retirement accounts, like your 401(k)s and IRAs? The longer you wait, the more potential you’ll have to grow your money tax-deferred (although you typically need to start taking minimum distributions at 70½).  

If retirement is near and you plan to make withdrawals soon, there are investment strategies that may help you cover the basics by providing regular, guaranteed income <link to new income annuities article>.

Have you factored in the needs of your spouse?

Does your spouse have their own retirement savings, or will you be responsible for the needs of your household? Remember that how you live now may change in the future. Ensuring you have enough money to cover expected and unexpected expenses for the both of you is essential.

What are your sources of retirement income?

When your paycheck stops, you’ll need to create your own. This will likely come from changeable income—things like 401(k)s, IRAs, and other investments—which can fluctuate based on the market or other factors.

Guaranteed income—things like Social Security or a pension—is money you know you’ll have for as long as you need it. Will you have enough guaranteed income? Or will you need to consider new investment strategies for generating lifetime income, like annuities?

Start planning now

Make sure you have enough guaranteed income in retirement to live your best life.

Learn more about annuities:

Guarantees are based on the claims-paying ability of Principal Life Insurance Company.

This document is intended to be educational in nature and is not intended to be taken as a recommendation. Consult with your financial professional to discuss retirement planning.

Annuity products and services are offered through Principal Life Insurance Company, a member company of Principal, Des Moines, Iowa 50392.

Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.