The year 2050 is still decades away, but it’s not too early to start planning for a mid-century retirement. Understanding how much you will need to retire by 2050 depends on a range of factors, including inflation, expected lifestyle expenses and healthcare costs. Few if any of these important concerns can be forecast with accuracy and precision that far into the future. However, it’s still possible to prepare a useful plan to guide a 2050 retirement by evaluating current expenses and projecting them into the future, considering annual cost-of-living increases and all-important personal circumstances. A financial advisor can also work with you to create a personalized retirement plan for your goals and needs.
Who’s Retiring in 2050?
If you plan to retire in 2050, you’re likely part of Generation X or a millennial. A person who reaches full retirement age in 2050 would be around 41 years old in 2024. While birthdays arrive predictably, the evolving landscape of Social Security, mounting healthcare costs and your personal life expectancy are less-certain factors that help determine how much to save.
With traditional pensions becoming more scarce, 401(k) plans, IRAs and other retirement savings vehicles will play more important roles in funding retirement for this group than for previous generations. The difference is that while pensions are funded by companies and provide defined benefits, the other plans depend on workers voluntarily saving for a distant retirement.
Estimating Living Expenses in 2050
The first step in determining how much to save is estimating future living expenses. Most financial experts recommend planning for about 70-80% of pre-retirement income to maintain your standard of living. According to the U.S. Census Bureau data, median household income for individuals in their 40s is around $100,000 annually. Using this figure, we can estimate that a 41-year-old in 2024 might aim for $70,000 to $80,000 per year in retirement.
However, this figure is 2024 dollars. To account for inflation, we must project how much that same amount will be worth in 2050.
Accounting for Inflation
Inflation reduces the purchasing power of money over time, meaning that the amount you save today will buy less in the future. During the 20-year period from 2004 through 2023, the average annual inflation rate was approximately 2.5%. Using this rate and an inflation calculator, we can project that in 2050, this household will need approximately $151,200 per year to maintain a lifestyle equivalent to living on $80,000 in 2024.
Determining Total Retirement Savings Needed
With an annual retirement income target of $151,200, the next step is to calculate how much total savings will be needed. A commonly used rule of thumb is the 25x rule, which suggests that you should aim to have 25 times your annual living expenses saved for retirement. This is based on the assumption that a 4% annual withdrawal rate from a conservatively invested portfolio with a very high degree of likelihood will sustain your savings over 30 years of retirement.
As $151,200 times 25 is $3.78 million, this suggests that today’s 41-year-old will need approximately that much in retirement savings by 2050 to cover 30 years of retirement.
Social Security Considerations
Social Security will likely provide significant income in retirement, though it’s unlikely to cover all expenses. According to the Social Security Administration, the average monthly benefit for retired workers in July 2024 was about $1,920, or $23,040 annually. Assuming Social Security benefits continue to grow with inflation, for an average worker this amount could increase to around $43,800 per year by 2050, based on a 2.5% annual cost-of-living adjustment.
If Social Security provides $43,800 per year, our hypothetical person would need to cover the remaining $107,400 of annual expenses from personal savings. Adjusting the 25x rule for this lower target to account for Social Security, the total retirement savings goal could drop to approximately $2.69 million by 2050.
Adjusting Savings Contributions
Given an approximate savings target of $2.69 million, the next step is determining how much a 41-year-old needs to save each year going forward to meet that goal. Assuming our hypothetical pre-retiree has already saved $200,000, they’ll need to save aggressively.
Assuming an average annual return of 6% on their investments, our hypothetical saver would need to sock away approximately $30,000 per year to reach $2.69 million in savings.
Don’t Forget About Healthcare Costs
One of the most significant costs for retirees is healthcare, and these expenses are expected to rise significantly by 2050. A 2024 Fidelity report estimated that a 65-year-old person may need up to $165,000 to cover their healthcare expenses in retirement – up 5% from a year before. Given the rising costs of medical care, a 41-year-old person in 2024 could expect this figure to grow considerably by the time they reach retirement.
This is why it’s important to factor healthcare expenses into retirement planning, either by saving more or purchasing long-term care insurance. Without proper preparation, healthcare costs can deplete retirement savings quickly.
Retirement Planning Caveats
While it can be concerning to envision running out of money in retirement decades in the future, saving for retirement can have real present costs including extra hours of work, luxuries foregone and vacations not taken. Thoughtful retirement savers balance current income demands with the likelihood that their future personal needs will actually require retirement savings balances indicated by benchmarks, many of which are quite risk averse.
For example, a 2023 survey by BlackRock and the Employee Benefit Retirement Institute found that on average across all wealth levels most retirees still had 80% of their pre-retirement savings almost two decades after they stopped working. A third had more assets than when they first retired. This suggests, among other things, that retiree spending is variable and may be less than commonly used guidelines.
Bottom Line
Planning for retirement by 2050 may seem overwhelming, but starting early can make the process more manageable. By estimating future living expenses, accounting for inflation and understanding the role of Social Security, you can begin setting realistic savings goals. Whether aiming for an approximate savings target of $2.69 million, consistent contributions and smart investment choices are key. Don’t forget to consider healthcare costs, which are projected to rise significantly.
Tips for Retirement Planning
- A financial advisor can work with you to create a personalized retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know how much your retirement savings could grow over time, SmartAsset’s retirement calculator could help you get an estimate.
Photo credit: ©iStock.com/Prostock-Studio, ©iStock.com/LaylaBird, ©iStock.com/Inside Creative House