Retirement Income Calculator: How Much Income Will I Receive?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Calculate How Much Retirement Income You Can Receive

Our retirement income calculator uses an annuity with a lifetime income rider for income distribution and generates realistic (not hypothetical) estimates. When you reach retirement age, the annuity contractually guarantees to pay a fixed monthly income for the rest of your life, including after the account has been spent down to ZERO. Unlike other investments, whose returns might vary, payments are guaranteed no matter the market conditions or your lifespan. Funding can come from cash, IRAs, 401ks, and other retirement accounts without tax issues.

How To Calculate Retirement Income

Understanding Retirement Income Sources

Retirement income can come from various sources such as Social Security benefits, pensions, individual retirement accounts (IRAs), 401(k)s, and personal savings. Each of these plays a vital role in determining your total retirement income.

Calculating Social Security Benefits

Your Social Security benefits depend on your earnings history and the age at which you start receiving benefits. The full retirement age varies based on your birth year. Benefits can be claimed as early as age 62, but delaying the start increases the monthly benefit.

Estimating Pension Benefits

If you have a pension, check with your employer or pension plan administrator to understand the benefits you’re entitled to at retirement. Pensions typically provide a fixed monthly income based on your salary and years of service.

Individual Retirement Accounts (IRAs) and 401(k)s

These tax-advantaged accounts are crucial for retirement savings. The value at retirement depends on contributions, investment choices, and market performance. A financial advisor can help estimate growth based on historical market data.

Personal Savings and Investments

Include personal savings, mutual funds, and other investments. Calculate potential future value based on current savings, expected contributions, and estimated rate of return.

Calculating Annual Retirement Expenses

Estimate your annual retirement expenses considering housing, healthcare, leisure, and other living costs. Adjust for inflation to reflect future cost increases.

Adjusting for Inflation

Inflation reduces purchasing power over time. Adjust your retirement savings and income estimates to account for expected inflation rates.

Tax Considerations

Understand how different retirement incomes are taxed. withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income, while Roth IRA withdrawals are generally tax-free.

Using a Retirement Calculator

Online retirement calculators can integrate all these factors to provide a comprehensive retirement income estimate.

Setting Retirement Goals

Define your retirement goals, including desired lifestyle and age of retirement. This helps in determining how much you need to save each year.

Professional Advice

Consider seeking advice from a financial advisor for personalized planning and investment strategies.

Calculate How Much Income You Will Receive When You Retire

Converting Savings Into Retirement Income

  • Shifting Focus Nearing Retirement: Nearing retirement is a phase where the focus shifts from saving money to effectively managing and utilizing savings to ensure a steady income stream. This shift requires informed decision-making to avoid common pitfalls.
  • Potential Challenges: Several challenges could affect income for retirees, including market volatility (sequence of returns risk), rising healthcare costs, unknown life expectancy, and miscalculating the amount safely withdrawn from savings each year.
  • Protection Against Uncertainty: Using annuities as a strategy for income protection can offer guaranteed income and help manage risks associated with retirement finances. They work by rolling over your retirement plan into an IRA annuity (without tax implications), which then pays out a regular income stream.
  • Importance of Insurance: Just as you insure essential assets like your home or car, annuities is insurance for your retirement income that could help mitigate this risk.
Retirement Income Calculator

How To Calculate The Ideal Retirement Income

  • Replacement Ratio Concept: This simple calculation helps you estimate what percentage of your current income you’ll need to maintain your lifestyle when you retire. Commonly, it’s suggested that individuals aim for 70 to 85% of their pre-retirement income.
  • Assumptions of the Replacement Ratio: This method assumes you’ll need less income after you retire because you won’t have work-related expenses, your taxes may decrease, you won’t be saving for retirement, you may not have dependents to support, and you might not have significant debt.
  • Benefits of the Replacement Ratio:
    • It’s easy to calculate and understand.
    • It adapts to changes in income and lifestyle.
    • It makes retirement planning more tangible and provides a clear goal.
  • Drawbacks of the Replacement Ratio:
    • It’s a generalized approach and doesn’t account for individual circumstances.
    • Assumptions about expenses and debt may not apply to everyone.
    • It might not be detailed enough for those close to retirement, ignoring potential higher costs like medical expenses or changes in Social Security benefits.
  • Using the Replacement Ratio: It’s a starting point for retirement planning. After calculating, the crucial step is figuring out how you’ll generate the needed income, considering sources like Social Security, pensions, and personal savings. It’s advised to recalculate your ratio annually to adjust for any changes in circumstances.
  • Professional Guidance: The document emphasizes consulting with a financial professional (like us) to develop strategies tailored to individual needs, especially as one nears retirement. This approach helps address potential financial challenges and plan for various scenarios.
Average Retirement Income

Calculate How Much Income You Need For Retirement

If you follow these steps, you will receive a monthly paycheck that covers your annual expenses like you were still working and earning your desired annual retirement income.

  1. Figure out how much money you need each month when you retire. This includes your mortgage/rent, car payment, and utilities. Exclude discretionary expenses.
  2. Find out how much money you will get from your retirement accounts, like a 401k, Roth IRA, and IRA. This is different from the money you will get from Social Security Income.
  3. If the guaranteed income sources do not cover your monthly expenses, determine how much monthly savings you need for retirement and when your Social Security Benefit will provide enough income to supplement the remaining monthly expense amount. It’s all about timing, so you may need to delay retirement.

The Average Retirement Income

According to U.S. Census Bureau data, the average retirement income for retirees 65 and older in the United States decreased from $48,866 in 2020 to $47,620 in 2021. However, the average retirement income doesn’t matter because everyone wants a different retirement lifestyle at various retirement ages.

Age RangeMedian Household Income
55-64$75,842
65+$47,620

What Is A Good Retirement Income Per Month?

Planning for retirement involves figuring out how much money you’ll need to live comfortably. It’s not the same for everyone, as it depends on your lifestyle, health, and when you retire. On average, if you’re 65 or older in the U.S., you might have about $47,620 per year, but your needs could differ.

Here’s a simplified breakdown:

  • How Much You Need: Most experts suggest that having 75% of the household income you made before you retired is a good target. So, if you used to earn $50,000 a year, aim to have about $37,500 each year when you retire.
  • Ways to Plan: You can use rules like the “50-30-20” budgeting rule to guess how much you’ll need. These rules consider your necessary costs, wants, and how much you save. But these are just starting points; your actual needs might be different. If you use this rule, allocate
    • 50% of your income goes to essential expenses.
    • 30% to non-essential/discretionary expenses.
    • 20% to savings.
  • Tools to Help: These online retirement income calculators can help you figure out these numbers. Also, saving early for retirement is crucial because it gives your money more time to grow.
  • Using Annuities: These are like financial safety nets, ensuring you regularly get a certain amount of money throughout retirement. They’re helpful because they can protect you from losing money due to increased cost of living or unexpected market changes and precisely forecast your future income.
  • Staying on Track: Once you have a plan, stick to it, but also review and adjust if needed. Saving for retirement might seem tough at times, but you can make it happen with a solid plan.

Strategies To Maximize Retirement Income

  • Know Your Goal: Figure out how much money you’ve saved up and how much you’ll need when you retire.
  • What Percent of Your Income You’ll Need: Consider how much of your current money you want each year when you retire. Make sure to include Social Security Benefits to help plan using less of your savings toward monthly income and more for saving or investing.
  • Extra Money Sources: Remember, you might get money from other places like:
    • Social Security: Money given by the government based on your past work.
    • Pensions: Regular money from your old job’s savings plan.
    • Annuities: Special savings that promise to pay you for as long as you live.
    • Life Insurance Proceeds and Inheritance: You might benefit from a parent’s life insurance policy.
  • Retirement Plans: Look at any savings plans you already have, like a 401(k) or IRA.
  • Taxes Matter: Don’t forget you’ll still have to pay some taxes when you retire.
  • Living Costs Go Up: Prices for things usually increase over time, so make sure your retirement money will, too.
  • When to Start Using Retirement Money: Choose the age you want to get money from your savings.
  • Smart Retirement Rules and Strategies:
    • The 75% Rule: You’ll probably need about 3/4 of your current income to live comfortably when you retire.
    • Save on Taxes: Use special accounts (like Roth IRAs) that could lower your taxes when you take out your retirement money.
    • Use Annuities Wisely: They can guarantee you steady money, even if the economy is unpredictable.
    • Invest Smartly: Mix different investing ways to grow your money and have a steady income.
    • Pick the Right Time for Social Security: Waiting a bit longer to get Social Security may give you more monthly money.
    • Protect Against Rising Prices: Some annuities increase your money over time, helping you keep up with higher living costs and inflation.

In Short, Planning for retirement means thinking about your goals, where you’ll get money from, and how to handle taxes and rising costs. It’s about ensuring you have enough money to enjoy your retirement comfortably.

What Is A Good Monthly Retirement Income?

Retirement Income Comparison

The table below compares how much income can be withdrawn from your retirement savings plans using most financial advisor’s income strategies, the 4% rule.

FeaturesAnnuity401kIRARoth IRA
Withdrawal Percentage5.20% – 6.55%4%4%4%
Can Income Increase?YesYesYesYes
Can Income Decrease?NoYesYesYes
How Long Will Money Last?Lifetime30 Years+30 Years+30 Years+
Annual Fees0 – 1.50%1% – 4%1% – 4%1% – 4%
TaxationTaxable/Tax-FreeTaxableTaxableTax-Free
Death BenefitAccount BalanceAccount BalanceAccount BalanceAccount Balance

Example: A 60-year-old retiree starts withdrawing immediately from their $1 million portfolio, they would receive:

  • Annuity: Between $52,000 and $61,000
  • 401k: $40,000
  • IRA: $40,000
  • Roth IRA: $40,000
Taxes On Retirement Income Calculator

How To Protect Retirement Income From Inflation

While many think of an annuity as a fixed income, some annuities offer the ability to increase payments to keep up with inflation. This retirement security is important because it can help to maintain the cost of living and prevent the purchasing power of retirement savings from declining over time.

Below is an example of a 64-year-old retiree who, with $100k, purchased an increasing income rider. They began with an annual payout of $4,750. By the time they reached 75 years old, their yearly income had increased to $8,581 and continued to grow even after the money in their account ran out.

How To Hedge Retirement Income Against Inflation.

Conclusion:

A retirement income calculator is valuable for those nearing retirement or planning for the future. It offers a realistic forecast of annual income, helping you make the best decisions for a comfortable retirement. Always remember to review your plans regularly and adjust as needed. Contact us for a quote below.

Retirement Income Quotes

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Questions From Our Readers

What is a good retirement income per year?

Most financial specialists recommend that you aim for 70-80% of your pre-retirement salary as income post-retirement. For instance, if your annual earnings were $50,000 ($ 4,167 a month) before retirement, it is suggested that you make around $35,000 -$40,000 annually while on retirement.

How much money do you need to retire with $150,000 a year income?

Using annuities, our research shows that a person would need between $785,880 and $2,307,692 saved to produce $150,000 annually in payments for the rest of the retiree’s lifetime.

What is a retirement tax calculator?

A retirement tax calculator is a useful tool for individuals planning their retirement income. It helps estimate the amount of taxes they may owe on their retirement savings and other income sources during their golden years. By inputting relevant financial data, such as pensions, Social Security benefits, and investments, the calculator provides an estimate of potential tax liabilities in retirement.

What is the definition of the cost of living in retirement?

The cost of living in retirement refers to the expenses one can expect after leaving the workforce. It includes housing, healthcare, food, transportation, and other essential costs. The actual cost varies based on factors like location, lifestyle choices, and healthcare needs. Planning for retirement and saving adequately can help in managing the cost of living in retirement.

How much income can $250k generate?

Using an annuity with a lifetime income rider or guaranteed lifetime withdrawals, $250,000 would generate between $18,500-20,000 yearly for the rest of your life.

How much income can $500,000 get me?

$500,000 can generate between $37,500 and $40,000 annually for the rest of your life using an annuity with a lifetime income rider.

I am 67 and want to be able to retire with $50,000 a year using my retirement funds. What do I need to do?

Using an annuity with a lifetime income rider, $650,000 would get you about $50,000 per year in guaranteed income for the rest of your life.

How much money do I need to retire with $80,000 a year?

If you used an annuity with guaranteed lifetime withdrawals or a lifetime income rider, you would need between $1,000,000 and $1,250,000 to receive $80,000 annually for the rest of your life.

I am 65 and about to retire. Based on our current expenses and desire to travel, I think my wife and I will need about $100k per year. Is this doable?

Yes. If you purchase an annuity for $1,500,000 and start payments immediately using a lifetime income rider you would be guaranteed between $100,000 and $120,000 per year for the rest of your life.

Hello. I have $3 million in my current retirement account; I am 65 and looking at cashing it out. What is the best way to cash out a large chunk of money?

If you transferred your $3,000,000 into an annuity with a living rider benefit, you would receive between $225,000-$240,000 annually for the remainder of your life.

How much money do I need to retire with $75,000 a year?

At age 65 using a guaranteed lifetime income rider, a $1 million dollar annuity will pay out between $75,000 and $80,000 annually for the rest of your life.

How much money do I need right now if I want to retire and receive $200,000 per year?

Assuming that you are at retirement age and want to start benefits immediately, you would need roughly $2,500,000 to $3,000,000. We would put this into an annuity with a guaranteed lifetime withdrawal benefit or lifetime income rider ensuring payments for the rest of your life.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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