How Much Does It Cost To Retire?
How much does it cost to retire? Expenses to prepare for.
For many, retirement is the reward at the end of a long career. A dreamy concept filled with choices and opportunities to connect more with those we love and with the things we love to do. Time is ours, and the only things holding us back are our imagination and our body’s ability to keep pace with our desires…oh, and money.
The median annual cost of retiring comfortably in the United States is now $66,870/year, with some states topping $100,000/year. Multiplied out over an average retirement of 30 years, that can top $2 million dollars.
According to the Survey of Consumer Finances (SCF), nearly half of
Americans have no savings in retirement accounts, and those who do may be unprepared for the dramatic shift that can occur after you walk out of the workplace that one last time.
In this article we’ll look at what it takes to retire and live out your dreams. Additionally, we’ll identify strategies for those still in the workplace who need to begin or augment their retirement savings. As a bonus, we’ll share with you one big thing you are already doing right now that will help make retirement easier.
But before we go too far, let’s retire some myths about retirement savings.
- Retirement will be cheaper: You might think a life with no schedules will be a less expensive one. That isn’t necessarily the case. If your retirement dreams are filled with trips abroad or seeing family a few states away, you may incur expenses you hadn’t previously. More free time can also increase your need to spend money on new hobbies and activities. To counteract this, a budget is key. We’ll discuss that more here in a minute.
- Social security is all you’ll need: Social security is not designed to replace all of your income. In fact, as it is designed, it covers approximately 40% of your working income. Most of us would have a difficult time living our current lives with that much less money.
- Retirement is a one-size-fits-all situation: Your dreams are your dreams! Don’t aspire towards someone else’s retirement; set your own goals and vision and pursue that. Especially for those who have spent much of their lives supporting others, retirement can and should be a time of personal fulfillment and self-care.
Like so many things in life, the best time to start planning for retirement has already passed. The second best time, however, is right now, so let’s go!
What will my expenses be in retirement?
The key to understanding how much you’ll need in retirement is knowing as best you can what you’ll be spending your money on. Some things that were covered, or didn’t impact you in the working world, become your responsibility and/or take up a larger percentage of your time and budget.
Retirement expenses to plan for tend to fall into certain categories, including housing, taxes, healthcare expenses and benefits, utilities, transportation, and food costs. Other miscellaneous expenses include hobbies, vacations, activities, and things that might be considered luxuries.
Many of these expenses are predictable in advance, and others can be estimated based on your spending history. If you are feeling a pinch from overspending, you might want to read this earlier article from our blog with tips on reducing monthly spending.
It is also important to remember that the cost of living continues to go up. According to the Social Security Administration, the cost of living has increased yearly by an average of 2.6% over the past 20 years with no signs of abating. Our article on 5 tips to protect your savings from inflation is a helpful resource here.
Do you have a budgeting mindset? If so, having a household budget in place or developing and implementing one now can help when estimating costs once you retire.
Credit Unions like ours offer many options when it comes to saving for retirement, and each has a specific role in helping you achieve your goals. We encourage you to schedule a meeting with a team member to discuss your options, which may include IRA share accounts and certificates, traditional savings accounts, certificates of deposit (CDs), and money market accounts.
You may already know we have the best high-yield savings accounts in Santa Fe. Money-market checking accounts offer a best of both worlds approach, with high rates of return AND the flexibility to write checks. These accounts allow you to make up to six withdrawals/debits per month to avoid fees, with a maximum of three by check or draft.
Additionally, consider the unique benefits of tax-advantaged retirement accounts. Traditional and Roth IRAs, as well as 401(k) plans, offer tax-deferred growth, and Roth IRAs allow for qualified tax-free withdrawals. Distributions from traditional IRAs and 401(k)s are taxable, but you can enjoy a tax break on contributions. If you have a 401(k), you may also benefit from employer matching—a fantastic way to build your balance faster.
The benefits don’t end there. Once you turn 50, the IRS lets you contribute even more to retirement accounts. For an IRA, you can add $1,000 to the 2024 limit of $7,000 if you’re 50 or older. For 401(k)s, the advantage is greater: beyond the $23,000 maximum, you’re allowed a $7,500 catch-up, totaling up to $30,500 per year.Where you are saving (and where you want to live) is important too!
Ok, here’s that good news we promised we’d share earlier. When it comes to retirement, few states rank as high in terms of affordability and quality of life as New Mexico. As if the sunsets and scenic vistas weren’t enough, the Land of Enchantment has increasingly become a comfortable landing spot for retirees. Let’s look at some facts about our home state.
Property taxes can disappear at 65. It’s called the Value Freeze, and homeowners who are disabled or over 65 years of age can apply. Of note, the subject property must be the applicant’s primary residence and an owner-occupied, single-family dwelling.
Your Social Security isn’t taxed here. In 2022, the New Mexico Legislature passed a bill later signed by the Governor that eliminates taxes on Social Security benefits for individuals with less than $100,000 in annual income or couples with less than $150,000 in income.
Retiring in New Mexico is more affordable vs. the rest of the country. According to data from CNBC, retirees in New Mexico can expect to need on average $54,291/year. Compared to states like California ($78,864) or Massachusetts ($85,571), staying put makes a lot of savings sense.
People in New Mexico are generally more prepared than those in other states for retirement. On average, New Mexico residents have over $425,000 in retirement savings, placing them 29th in the overall ranking of the 50 states and the District of Columbia.
Bonus Material: Don’t let debt drag you down
There is good debt and “not-so-good” debt, and having a plan on how to tackle both kinds is important—even more so as you plan for or move into retirement. Search out resources now, including these articles from our blog library, to position yourself for success.
Be prepared for a better retirement
The Boy Scouts famous motto of “Be Prepared” applies perfectly to so many things in life, especially your retirement. Being prepared can help ensure your post-working years are filled with joy and comfort. Let Del Norte Credit Union help you get started today on the path towards the best retirement possible.
Ready to kickstart your retirement planning?
Open an IRA or Certificate of Deposit with Del Norte Credit Union today!