How Much Should I Have in My IRA When I Retire?

Retirement Nest Egg

When it comes to retirement planning, you need to look at your entire nest egg from the top down and make your plans based on those results. That means looking at not only your IRA accounts but your 401k balance and personal savings as well. Tracking the balance in your retirement funds from year to year is one of the best ways to prepare for the day when you stop working. You can consider your IRA separately, especially if you have a Roth account you plan to use for tax-free retirement income, but that IRA is still just a part of a larger retirement planning picture.

The more guaranteed sources of income you will have in retirement, the less you need to save on your own. For instance, if you have a guaranteed monthly pension and Social Security that can cover the bulk of your living expenses in retirement, the amount you need to put into your IRA and other savings can be quite low. On the other hand, if Social Security is your only guaranteed source of income, you might need to save a great deal to make up the shortfall. The Social Security Administration's own figures indicate that those monthly checks can be expected to replace only 40 percent of pre-retirement income, so you will need to use your retirement portfolio, including your IRA, to provide the rest.

Making your money last as long as you do is essential when it comes to retirement planning, and one of the best ways to accomplish that goal is with a conservative withdrawal rate. Many retirement planning experts recommend withdrawing no more than 4 to 5 percent of your portfolio during your retirement years. If you have a $500,000 retirement nest egg consisting of your IRA, 401k and personal savings, that equates to a first-year withdrawal of $20,000 to $25,000. You can determine the size of the nest egg you need by multiplying your expected first-year withdrawal by 20 or 25.

Retirement planning is not a static strategy, either before or after you stop working. Before you stop working, you should be preparing for your retirement by checking the balances in your IRA, 401k and other retirement accounts and making any necessary adjustments to the amount you save each year. After retirement, you need to review your budget carefully and look for ways to save money and make your nest egg last longer.