Saving for Retirement: How to Stay on Track

Summary: Understanding how much to save for retirement requires considering often-overlooked factors such as longevity, healthcare costs, inflation, taxes and lifestyle choices. This article walks through the factors you should consider if you want to keep your retirement savings goal on track.

Have you ever wondered if you’re saving enough for retirement? It’s a question many people struggle with, and for good reason. Your financial security in retirement depends on the decisions you make earlier in life.

You’ve probably heard the advice: “Save 10-15% of your income for retirement.” It sounds simple enough, but that guideline doesn’t consider some important things that change how much you really need. While having a retirement savings goal is wise, factors like rising healthcare costs and inflation can eat away at your savings.

Let’s examine how much to save for retirement and the often-overlooked factors that can make or break your financial planning.

Factors affecting how much to save for retirement

You’ve probably asked yourself this question many times: “Am I saving enough for retirement?” According to the 2024 Retirement Confidence Survey, just over one in four Americans feel confident they’ll have enough money to retire comfortably. Those who feel more confident usually have a retirement plan in place.¹

When figuring out how much to save for retirement, two primary factors to consider are the age at which you plan to retire and your retirement income sources (i.e., Social Security, a pension, rental income, or annuities).

1. Your longevity

One of the biggest mistakes people make when planning for retirement is underestimating how long they’ll live. Advances in healthcare have enabled many people to live well into their eighties and nineties. That means, should you retire at 65, you could need enough retirement savings to cover expenses for over 25 years.

Given the likelihood that you may live very long, consider taking these steps to prepare for financial stability in retirement and beyond:

• Delay Social Security benefits: Each year you wait beyond full retirement age, your monthly benefit increases. If you can afford to wait until 70, your monthly benefits may be significantly more.
• Investigate annuities or longevity insurance to ensure you don’t run out of money.
• Be prudent with your retirement savings withdrawals. Work with a financial professional to create a flexible retirement income plan that allows you to shift your withdrawals based on market performance without impacting your income.

2. Healthcare costs

A common myth is that Medicare will cover all your healthcare expenses in retirement. While it covers many medical expenses, Medicare doesn’t cover everything. You may still have to pay for out-of-pocket for premiums, prescriptions and long-term care.

Additional things to note:

• Estimate your annual medical costs and build them into your retirement budget.
• Plan for at least $300,000 in healthcare expenses for your retirement years.
• Consider a tax-free Health Savings Account (HSA) or long-term care insurance to cover unexpected healthcare costs.

3. Inflation

Cost of living keeps going up. What costs $50,000 today could cost $90,000 in ten years. Inflation can decimate the purchasing power of your retirement savings.

Don’t let inflation eat your retirement savings—plan! Here’s how to help you stay ahead of inflation:

• Keep a portion of your portfolio in stocks. Equities have historically outpaced inflation over the long run. Keep in mind all investing involves risk, including the possible loss of principal. Past performance does not guarantee future results.
• Consider Treasury Inflation-Protected Securities (TIPS) as a hedge against inflation.
• Invest in real estate because home values and rental income often keep up with inflation.

4. Your retirement lifestyle

What retirement looks like for you may differ from other people. The old idea of downsizing, cutting expenses and living quietly doesn’t work for everyone. Many retirees today want to travel, start new hobbies or even launch second careers.

The amount of savings you’ll need for retirement should reflect the lifestyle you plan to lead after you retire. For example, if you plan to travel often, you’ll need additional savings to pay for flights, accommodations and travel insurance. Some experts suggest that retirees planning to travel extensively should budget for at least $10,000 per year for travel expenses.²

5. Taxes

Just because you’re retired doesn’t mean you’re off the hook for taxes. The IRS taxes withdrawals from 401(k) and traditional IRAs as regular income, and even Social Security benefits can become taxable if you have other sources of income.

After you retire, look at where you live and figure out if you can cut expenses by moving to a more affordable city or state. The best places for retirees to live are those with little to no state income taxes on Social Security and retirement income, and easy access to quality healthcare. Moving to a state that doesn’t tax Social Security or retirement income can help you hang onto more of your retirement savings.

6. Unexpected expenses

Life happens, and retirement doesn’t make you immune to financial surprises. You might need to help your adult kids, support aging parents or cover home repairs you didn’t plan for. So, even in retirement, it’s wise to have an emergency fund to help cover those unexpected expenses. Experts recommend you have at least one or two years’ worth of expenses set aside to cover emergencies.³

Making the most of your retirement savings

Planning for retirement isn’t just about saving a percentage of your income—it’s about anticipating the unexpected. Longevity, healthcare, inflation and taxes can all throw a wrench in your plans if you’re unprepared. The key is to stay flexible, reassess your plan regularly and use smart financial strategies to stretch your savings.

If you feel overwhelmed, Mutual of Omaha can help. Our retirement calculator can help give you an idea of how long your retirement savings will last. The experienced financial planners at Mutual of Omaha can guide you on annuities, long-term care insurance and retirement planning to help you create a strategy tailored to your unique needs.

FAQs

Q1. How much should I save for retirement?

The amount you should save for retirement depends on your expected living expenses, desired lifestyle and income sources, such as Social Security or pension. While a standard guideline suggests saving 10-15% of your income, this may not be enough for everyone.⁴ Rising healthcare cost, inflation and a longer life expectancy mean you might need to adjust your retirement savings. A good way to estimate your future expenses is to use a retirement calculator to determine your retirement savings goal.

Q2. Will Social Security be enough to support me in retirement?

Social Security benefits can provide you with some income in retirement, but it usually isn’t enough to cover all your expenses. You can maximize your benefits by holding off until you are 70. However, you may still need to supplement Social Security with a pension, 401(k), IRA or other investment.

Q3. What should I do if I’m behind on retirement savings?

If you are behind on saving for retirement, there are several steps you can take to catch up. You should start by increasing your contributions to retirement accounts like a 401(k) or IRA. If you are 50 or older, you can make annual catch-up contributions to specific retirement plans. Other options for boosting your retirement savings include delaying your retirement until you are 70 and reducing spending so you can put more into your retirement savings.

Disclosures:

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice. Not all Mutual of Omaha agents are registered representatives or financial advisors.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.

Real estate investing can be subject to a number of risks including but not limited to general market risk, liquidity risk, credit risk, structural risk, and leverage risks.  The strategies mentioned may not be suitable for everyone.

Sources

1. EBRI/Greenwald Research, 2024 Retirement Confidence Survey, 2024
2. Kiplinger, Four Keys to Budgeting for Travel in Retirement, February 2024
3. Yahoo Finance, Here’s How Much Retirees Should Keep in an Emergency Fund, September 2024
4. Nerd Wallet, How Much Should You Save for Retirement? Here’s How to Find Out November 2024

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