Will your retirement savings make you rich or broke?

When you retire and claim benefits, Social Security replaces about 40% of your earned income, which isn’t much. You don’t want to live off of your retirement benefits alone because they can’t really be the only source of support for you.

If you’re like most people and work for an employer that doesn’t offer a pension with a guaranteed monthly income, you’ll need a significant amount of money in a retirement account (such as an IRA). Through your later years. That’s why it’s important to make sure your savings efforts are on track so you don’t end up falling short.

So how do you know if your retirement savings will make you rich or broke? Here’s what you need to do:

Estimate how big your nest egg will be at retirement.

To determine whether you’re cash-rich or struggling to survive in retirement, you’ll want to figure out how much money you have available to you as a retiree.

There are many online calculators you can use to do this, including Investor.gov. Just type:

• Amount invested
• Your planned monthly contribution
• Years remaining until retirement
• Expected interest rate (around 10% is appropriate)

For example, let’s say you currently have $25,000 invested, plan to contribute $300 per month, and have 20 years until retirement. You can use this calculator to determine if you’ll likely end up with approximately $374,377.50 in your brokerage accounts or other retirement plans.

Choose a safe withdrawal rate

Next, you’ll want to estimate a safe withdrawal rate. This is the amount you can withdraw from your retirement account without using up the balance too quickly and going bankrupt. A good rule of thumb is generally to withdraw no more than about 4% of your account balance in the first year and adjust for inflation thereafter.

If you choose a withdrawal rate of 4% and have $374,377.50 in your investment account, your investment would be only $14,975.10 per year. Even combined with Social Security (average monthly benefit of $1,907 in 2024), it may not be enough to maintain your lifestyle.

Determine if you can afford the lifestyle you want with a safe withdrawal rate.

The final step in determining whether your retirement savings will make you rich or broke is estimating whether your savings will be enough to live the way you want.

Most experts recommend replacing at least 70 to 80 percent of your pre-retirement income, but some people need more if they want to travel a lot or have high health care costs. If you expect to earn $85,000 per year at the end of your career, you’ll need savings and Social Security to add up to $68,000 to replace 80% of that. So if you can get by on just Social Security benefits and minimal savings, you’ll fall far short.

According to this calculation habit If you have enough money to replace the required percentage of your income, you may not be able to maintain your retirement lifestyle. You can start saving more now for a better future, or you can plan to drastically reduce your cost of living by moving to a more affordable area. If you don’t want to close yourself off from future options, you can start saving more now and put yourself on the path to becoming rich instead of broke as a retiree.

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