back to insights

Dreaming of retirement? The golden years can be filled with relaxation, travel, and pursuing passions. But before you can picture yourself sipping margaritas on a beach, a crucial question arises: how much money do you actually need to make that dream a reality?

Commons Capital is here to help you navigate this essential aspect of retirement planning. Let's dive into the key factors and strategies to ensure a comfortable retirement.

A General Rule of Thumb
‍
Commons Capital suggests aiming to save 10 times your final salary by age 67. This serves as a general guideline to ensure your savings can support your desired lifestyle in retirement, factoring in Social Security income.

Personalized Savings Goals
‍
While the 10x rule provides a helpful benchmark, your specific savings goal might differ based on several factors:

Desired Retirement Age: Retiring earlier typically requires a larger nest egg as you'll have more years to cover your expenses.
‍
Lifestyle Expectations: Do you envision an active retirement filled with travel and hobbies, or a more low-key lifestyle?
‍
Healthcare Costs:  Factor in potential healthcare expenses, especially as you age.
‍
Debt: Existing debt can impact your disposable income for savings.
‍
Social Security Benefits: The amount you receive from Social Security will vary based on your earnings history.

Key Strategies for Retirement Savings
‍
Start Early: The earlier you start saving, the more time your money has to grow.
‍
Maximize Employer Contributions: Take advantage of any employer contributions to your retirement accounts.
‍
Consider a Roth IRA: A Roth IRA offers tax-free withdrawals in retirement, making it a valuable tool for saving.
‍
Invest Wisely: Consult with a financial advisor to develop an investment strategy that aligns with your risk tolerance and time horizon.
‍
‍Regularly Review and Adjust: As your circumstances change, revisit your retirement plan and make adjustments as needed.

Don't Be Discouraged
‍
If you're behind on your savings goals, don't despair. Start by calculating your current savings and how much you can realistically contribute moving forward. Even small increases in your savings rate can make a significant difference over time.

Taking Action is Key

The most important takeaway is to take action now. Utilize Commons Capital's resources or consult with a financial advisor to develop a personalized retirement plan. Remember, the sooner you start planning, the better equipped you'll be to enjoy a comfortable and fulfilling retirement.

Additional Tips

Consider part-time work: If you plan to retire early, part-time work can provide additional income and delay the need to draw from your savings.
‍
‍Explore other income sources: Consider options like rental income, dividends, or interest from investments.
‍
‍Stay informed: Keep up-to-date on retirement planning trends and tax laws.

By following these steps and considering your individual circumstances, you can unlock the mystery of "how much" you need to retire and confidently step into your golden years.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

1. Commons Capital has developed a series of salary multipliers in order to provide participants with one measure of how their current retirement savings might be compared to potential income needs in retirement. The salary multiplier suggested is based solely on your current age. In developing the series of salary multipliers corresponding to age, Commons Capital assumed age-based asset allocations consistent with the equity glide path of a typical target date retirement fund, a 15% savings rate, a 1.5% constant real wage growth, a retirement age of 67 and a planning age through 93. The replacement annual income target is defined as 45% of pre-retirement annual income and assumes no pension income. This target is based on Consumer Expenditure Survey (BLS), Statistics of Income Tax Stat, IRS tax brackets and Social Security Benefit Calculators. Commons Capital developed the salary multipliers through multiple market simulations based on historical market data, assuming poor market conditions to support a 90% confidence level of success.

These simulations take into account the volatility that a typical target date asset allocation might experience under different market conditions. Volatility of the stocks, bonds and short-term asset classes is based on the historical annual data from 1926 through the most recent year-end data available from Ibbotson Associates, Inc. Stocks (domestic and foreign) are represented by Ibbotson Associates SBBI S&P 500 Total Return Index, bonds are represented by Ibbotson Associates SBBI U.S. Intermediate Term Government Bonds Total Return Index, and short term are represented by Ibbotson Associates SBBI 30-day U.S. Treasury Bills Total Return Index, respectively. It is not possible to invest directly in an index. All indices include reinvestment of dividends and interest income. All calculations are purely hypothetical and a suggested salary multiplier is not a guarantee of future results; it does not reflect the return of any particular investment or take into consideration the composition of a participant’s particular account. The salary multiplier is intended only to be one source of information that may help you assess your retirement income needs. Remember, past performance is no guarantee of future results. Performance returns for actual investments will generally be reduced by fees or expenses not reflected in these hypothetical calculations. Returns also will generally be reduced by taxes.

2. The 45% income replacement target assumes a retirement and Social Security claiming age of 67, which is the full Social Security benefit age for those born in 1960 or later. For an earlier retirement and claiming age, this target goes up due to lower Social Security retirement benefits. Similarly, the target goes down for a later retirement age. For a retirement age of 65, this target is defined as 50% of preretirement annual income, and for a retirement age of 70, this target is defined as 40% of preretirement income. As the income multiplier target is based on income replacement target and retirement age, for an earlier retirement age, this target goes up due to lower social security retirement benefits and a longer retirement horizon. Similarly, the target goes down for a later retirement age. For a retirement age of 65, this target is defined as 12x and for a retirement age of 70, this target is defined as 8x.

3. Commons Capital analyzed the household consumption data for working individuals age 50 to 65 from Consumer Expenditure Survey, US Bureau of Labor Statistics. The average income replacement target of 45% is based on the objective of maintaining a similar lifestyle to before retirement. This target is defined at 35% for "below average" lifestyle and 55% of preretirement income for "above average" lifestyle. Therefore, the final income multiplier target of 10x the final income goes down to 8x for 'below average' lifestyle and increases to 12x for 'above average' lifestyle. See footnote 1 for investment growth assumptions.Retirement savings factors are hypothetical illustrations, do not reflect actual investment results or actual lifetime income, and are not guarantees of future results. Targets do not take into consideration the specific situation of any particular user, the composition of any particular account, or any particular investment or investment strategy. Individual users may need to save more or less than the savings target displayed depending on their inputs retirement age, life expectancy, market conditions, desired retirement lifestyle, and other factors.