Calculating retirement income
How much should you save for retirement? That's the question at the heart of every retirement saver. And as simple as the question seems, the answer can be quite complex.
- How much you invest and when you invest it: How much you set
aside for retirement—and when you set the money aside—will heavily
influence your retirement income. And, arguably, it's the factor you have
the most control over. The earlier you can contribute to a retirement
plan, the better. If you put money into your retirement account when
you're 25 years old, you can potentially receive compound growth for 40
years (assuming you retire at age 65). If you wait to add money to your
retirement investments until you're 55 years old, you only have 10 years
to potentially experience growth.
- Rate of return on your investments: The rate of return—positive or
negative—that you receive on your investments will have a huge impact
on your retirement income. If you have a low (or negative) rate of return,
your portfolio might not even keep up with inflation. If you have a high
rate of return, your portfolio will grow.
- Age you retire: The age you retire has a direct bearing on how much
retirement income you'll need. The longer you work, the less need you'll
have to replace your employment earnings with retirement income.
- How long you live: This is perhaps the most vexing piece of the
retirement income puzzle. If you die shortly after you retire, then you
won't need much income. But if you live a long life after your earning
years have ended, you'll need a much larger amount of retirement
- The amount of income you need or want: Your monthly income
requirements (barring healthcare costs and/or other unexpected
expenses) should be relatively easy to predict. You can forecast a
monthly budget for your retirement expenses and even create two
budgets—one for how much you need and the other for how much you
- Taxes on your retirement income: When calculating retirement income,
you'll need to factor in the income taxes you might be required to pay
as you receive Social Security benefits and/or start withdrawing money
from your retirement accounts.
- Social Security retirement benefits: To qualify for Social Security
retirement benefits, you'll need at least 10 years of work (when your
earnings were covered by Social Security) and be at least 62 years of age.
The amount you'll be able to collect from Social Security each month is
based on your earnings, the age at which you start collecting benefits,
and your marital status.
- Retirement plans and Income America™ 5ForLife: By taking
distributions from your retirement plans, such as 401(k) plans, pensions,
and IRAs, you can help fund your income in retirement. If your employer
offers Income America 5ForLife as a retirement plan investment, you
may contribute to it while you're working. When you reach age 65, your
income base will lock in and you'll receive 5% of your income base per
year, for the rest of your life.1
Pensions: If your employer offers a pension plan, once you retire, you'll
typically receive a specific monthly payment for life.
- Savings: You can pad your retirement income with the interest you
receive from your savings accounts and/or from withdrawals.
- Investments: Other investments—such as stocks, bonds, investment
property, and more—can also help bolster your retirement income.
1 If the joint option is elected, the participant's payout will be lower than 5%, depending on their age and their spouse's age. If you withdraw more than the guaranteed annual income in any year, your income base and future guaranteed annual income will decrease.