Will I have enough money for retirement living in Minneapolis-St. Paul? (2024)

Retirement. It could be decades ahead of you orjust a few years away.

No matter how close or far away it is, you probably havethought about how much money you will need. Are you saving enough? Are youspending too much? How much money will you need to enjoy retirement?

A Simple Retirement Calculation

Retirement calculations can be complex or simple, dependingon your interest in the topic and the time you have to spend get a meaningfulnumber. But there’s one calculation that still stands the test of time:

You’ll need between 70–80% of what you earn today to maintain the same lifestyle in retirement.

There are other factors to consider in retirement,including:

• Do you expect your expenses to be higher or lower when youretire? Many people assume that theirliving expenses in Minneapolis-St. Paul area willgo down in retirement as mortgage and car loans get paid off. But even ifthat’s the case and those expenses are gone, you may want to travel more inretirement than you do today. Or maybe you’ve been counting on a second home atthe lake.
• Do you know what sources of income you’ll have inretirement? Do you plan to work part-time?Are you counting on money from another outside source? And what do you expect toreceive from Social Security? These are important questions to ask — andanswer.
• How much money will you need to draw each year from themoney you saved for retirement? Financialprofessionals often refer to this as “4% rule,” where you may be able to withdraw4% of the money saved for retirement without running out of money. But, as theysay, your mileage may vary.

Retirement Savings Calculation Example

If you decide you want to fund your retirement at 70% ofyour pre-retirement income today and your annual salary living in Minneapolis-St.Paul area, for example, is $80,000, you will need $56,000 each year to maintainyour same standard of living.

If your annual Social Security benefits are $17,713 (that’sthe average for 2020), this means you’ll need about $38,287 each year to coverthe deficit. Assuming a conservative 4% percent rate of return over time, youcould need about $975,000 in your retirement savings or approximately $39,000in additional monies — and perhaps even more as time goes on — to keep pacewith cost-of-living increases tied to inflation rates.

This example is just one scenario, and it likely doesn’trepresent your annual salary or your benefit payment that’s projected on your annualSocial Security statement.

Save Up to (and EvenThrough) Retirement

The bottom line is this: If you don’t want to make majorchanges to your Minneapolis-St. Paul area lifestyle in retirement, you shouldbe saving a chunk of money each year until you hit retirement — and quitepossibly continue to save throughout retirement — to fund everything you needto live comfortably.

Despite predictions that our nation’s subsidy won’t last,Social Security benefits continue to be the main source of income for manyretirees. Depending on the amount you paid into it (through your payroll taxesand your employers’ payments), your monthly benefit check might not cover allyour wants and needs. Just how big or how small your government benefit is,depends on your salary history over your lifetime.

Great if You HaveOne: Pension Plans

Are you counting on a pension plan in addition to anemployer-sponsored retirement plan? If so, consider yourself one of the luckyones, as more and more Minneapolis-St. Paul area companies have phased out thisretirement benefit.

Pension plans (also called a defined benefit or DB plan) aredesigned to provide you with a recurring benefit based on how you and youremployer contributed to it.

If you have a DB plan, it can help to supplement the amountof money you will need in retirement.

More Common Today:401(k) Plans

The more available and accessibleway to save for retirement is through an employer’s savings plan — a 401(k) or403(b) plan if you work in education, for a nonprofit or other tax-exemptorganization.

Defined contribution (DC) plans, such as these, offertax-deferred growth and don’t require you to withdraw money until the yearafter you reach the age of 70 ½. (Note the new SECURE Act announcement from the IRS regardinga recent change to required minimum distributions.)

401(k)s and 403(b)s give you an opportunity to make savingfor retirement a recurring habit through regular payroll deductions. When youput away money for the future in a DC plan, your retirement monies can be asignificant addition to what you’re expecting from Social Security or a DBplan.

Defined ContributionPlan Limits

Each year, annual contributions to DC plans are capped at acertain amount. For example, in 2020 the IRS set the maximum annual contribution to $19,500,with an additional $6,500 contribution if you’re age 50 or older.

Your employer likely offers a matching contribution up to aspecified amount or percentage, which gives you the opportunity to grow yourretirement savings account even more.

IRAs and Roth IRAs

Another way to save for retirement is by opening anIndividual Retirement Account (IRA) or Roth IRA.

Depending on your income and eligibility to participate inan employer’s retirement savings plan, your IRA contributions may also be tax-deductible.

Contributions to Roth IRAs are not tax-deductible; however,you may be able to take advantage of less restrictive guidelines on withdrawalsfrom Roth IRAs.

To learn more about your eligibility to contribute to a RothIRA, view the IRS’ guidelines for 2020.

Retirement Help at the Right Time living in Minneapolis-St. Paul area

Saving for retirement — and saving enough to meet yourprojected future needs living in Minneapolis-St. Paul area — is likely to beone of the most important financial decisions you’ll make in your lifetime.

No matter where you are in your savings journey, we can helpyou answer the question Will I haveenough money for retirement.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. You should discuss your specific situation with the appropriate professional.