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Are you saving enough for your dream retirement?

Follow these four steps to figure out how much you will need.


ASK THREE FINANCIAL EXPERTS how much you need to save for retirement, and you might get three different answers: a specific number, say $3 million; a figure based on future spending, such as enough to draw down 80% to 90% of your pre-retirement income every year; or a simple formula, like saving 12 times your pre-retirement salary.


So what's right for you? To identify a savings target that fits your goals and priorities, work through these four steps with your advisor. “Your financial advisor can also suggest ways to adjust your current savings and investment plan to help achieve that amount,” says Jeremy Kaneer, director, Investment Solutions Group for Merrill.

1. Ask yourself: How long could my retirement last?

Portrait of Jeremy Kaneer“There are multiple personal variables to weigh when starting to think about how much you’ll need to save for retirement.”

— Jeremy Kaneer, director, Investment Solutions Group for Merrill

Having a clear idea of the sort of lifestyle you want in retirement will help you estimate how much it could cost. Start by thinking about your essential or nonnegotiable regular expenses, such as a roof over your head, food on the table and out-of-pocket healthcare expenses. Then consider expenses that are important to your lifestyle. That might be anything from dining out frequently to traveling overseas every year. Offering financial support to aging parents or helping adult children or grandchildren with education expenses might also be a priority.


Finally, consider any aspirational or discretionary goals you may have, like purchasing a second home on the beach or in the mountains or pursuing certain philanthropic activities. “We have clients who have their own family foundations,” says Merrill Financial Advisor Katherine Darragh Larsen, making philanthropy central to their planning.


Keep in mind, too, that some essential expenses — such as your own healthcare spending — may increase in retirement, while your retirement lifestyle may shift as you age. Just as you juggle and prioritize competing goals when you’re younger, you’ll need to do the same throughout retirement.

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2 Picture your perfect retirement.

“There are multiple personal variables to weigh when starting to think about how much you’ll need to save for retirement,” says Kaneer. Your current age may be among the most important. Especially if you’re young and in good health, your retirement may last 30 years or more, he notes.


No matter what your current age is, however, you may find that you end up retiring earlier (or later) than expected based on unforeseen circumstances. Either situation could affect the number of years you will need to rely on your assets for income, and it’s important to plan for those possibilities.

3 Review how much you already have saved.

Once you have a target annual income figure in mind — you can use this retirement income planning worksheet to come up with an estimate of your future spending — you and your advisor can take an audit of all of your anticipated sources of retirement income (retirement accounts, Social Security, pensions, annuities, rental income, an inheritance or sale of a business) and calculate how much you could potentially draw from them once you retire. Your personal retirement accounts may be one of your biggest sources of income, and you could be surprised by how much — or how little — even a seemingly large retirement account could provide over the course of a long retirement. See the chart below.

Graphic titled, “How much could $1 million or more give you per year?” which shows the projected annual income from investments at age 65. Visit the link below for a full description.

* The accumulated investment savings by age 65 could provide an annual retirement income, adjusted for future inflation (in today’s dollars), of this amount with a high (95%) probability of success for a life expectancy of 91 years, if withdrawn at a sustained spending rate of 3.84%,  and invested using conservative asset allocations. Source: Chief Investment Office, Portfolio Analytics, “Determining sustainable retiree spending rates: Beyond the 4% rule,” January 2022.

Your advisor can estimate how your assets might look in the future, given your current savings rate and investment allocation, factoring in the risk of inflation and market performance. (You can prepare for that conversation using our Personal Retirement Calculator, which lets you view a projection of your future savings based on your age and current savings rate.)

4 Close the gap: Adjust your strategies to pursue the income you’ll need.

You and your advisor will then be ready to talk about any adjustments you might need to make. If you’re in your mid-30s, you may have 30 years to build assets, but “if you’re relatively close to retirement, a first step may be figuring out what you’re spending today and calculating whether you’re on track to support that in retirement,” Larsen says.

“Even if you find that you're behind where you want to be, don’t get discouraged,” advises Kaneer. “There are a number of ways that you can catch up.” Be sure you’ve maxed out tax-advantaged retirement plans, such as a 401(k) or IRA, and taken advantage of any employer match. If you’re 50 or over, you may be eligible for additional 
“catch-up” contributions.

Graphic titled, “Worried you won’t have enough?” which shows the impact of contributing the maximum to your retirement plans. Visit the link below for a full description.

Source: Bank of American Office of the CIO. Assumes a 7.1% annual return. The 401(k) contribution includes the $6,500/year catch-up contribution for those age 50+, and does not include any potential company match. This example is hypothetical and does not represent the performance of a particular investment. This example assumes annual returns before taxes, fees and expenses. Your results will vary. Actual investing includes fees and other expenses that may result in lower returns than this hypothetical example.

Portrait of Jeremy Kaneer“Even if you find that you’re behind where you want to be, don’t get discouraged. There are a number of ways that you can catch up.”

— Jeremy Kaneer, director, Investment Solutions Group for Merrill

Other tax-advantaged savings options include certain annuities and cash-value life insurance. With a high-deductible health insurance plan, you’re eligible to contribute pre-tax dollars to a health savings account, which can be rolled over year after year and used in retirement for more than healthcare costs.


A financial advisor may also suggest revisiting your investment strategy. “Asset allocation and thoughtful, goals-based portfolio management are two things that can potentially steer you to a better retirement outcome,” notes Kaneer.


Remember, too, that retirement is a journey. “You can always change course if you need to — maybe by working a few years longer or adjusting your expenses,” he adds. But by starting early and planning ahead, you’ll have a far better chance of living the life you truly want in retirement.


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Important Disclosures


Opinions are as of 03/31/2023 and are subject to change.


Investing involves risk including possible loss of principal. Past performance is no guarantee of future results.


This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.


The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).


Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad.  Bonds are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government.


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