Want to receive $1,000 a month in retirement? This is what you need to save in your 401(k) to get it

Americans born in 1960 and later will have to keep contributing to Social Security until they are 67 years old, if they want to receive the full benefit that they have earned. While only a little more than a third of non-retirees think that this will be a major source of income, among current retirees 58% say that it is according to a Gallup report earlier this year.

However, Congress must act to shore up the national pension scheme’s finances before the Social Security Trust Fund runs out of reserves, resulting in payment cuts across the board. This is forecast to happen in 2034. But, depending on what proposals the incoming Trump administration puts into effect, that date could move up by three years and lead to deeper cuts than currently contemplated.

These kinds of uncertainties have those planning their retirement looking at other forms of savings to live off of in their golden years like 401(k). These retirement savings investment programs are predicted to be non-retired American’s No. 1 income source when they retire.

But figuring out how much you will need when you retire can be a daunting task, and there is no set amount for each and every retiree. Fortunately, the Institute of Financial Wellness (IFW) explains that there is a simple formula that can help you with your calculations, known as the ‘$1,000 per month rule’.

Want to receive $1,000 a month in retirement? That’s what you need to save with the 401(k) to get it

The first thing you want to do in order to calculate how much you’ll need for retirement is determine what your monthly expenses are. Make a list of what you spend on the basics: housing, groceries, healthcare, insurance, transport and utilities, as well as non-essentials like entertainment and travel. If you are not sure about the amounts, make an estimate and add a little more to give yourself a buffer.

Next, add up all the amounts for your expenses and then multiply the total by 12. In IFW’s example, “if your monthly expenses are $3,000, your annual expenses would be $36,000.” Now, divide the amount of your annual expenses by 0.05. This represents a 5% withdrawal rate.

In the example provided by IFW, you would need to have $720,000 in savings. This would allow you to comfortably withdraw in retirement $3,000 each month. Vital factors to consider when planning for retirement include the rising cost of living, income and life expectancy when deciding how much to save.

Keep in mind at what age you plan to retire. But note that most people say they will keep working longer than they end up doing so in reality.

If you are feeling concerned after calculating how much you need to save, here is another bit of information that the Gallup report uncovered. While over half of Americans aged 45 to 60, who were surveyed 20 years ago, worried that they wouldn’t have enough money saved to live comfortably in retirement, nearly 80% of them say that they have enough now that they are retired.

The study reckoned that this could be because retirees were able to “take unanticipated advantage of the opportunities,” such as downsizing or moving to a cheaper area of the country. Likewise, retirees may not have anticipated the lack of certain expenses in retirement related to not having to go to work or responsibilities that come with childcare.

The retirees surveyed, furthermore, may have found that Medicare covered their healthcare expenses in ways that they hadn’t expected and that Social Security was a far more significant source of income than they had anticipated. Twenty years ago only 35% of the cohort aged 45 to 60 expected Social Security to be a major source of income, but 61% of that group, who today are 65 to 80 years old and now in retirement, say that it is.

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