How Much Do I Need to Retire?

Are you asking yourself, "How much do I need to retire?" Read on to figure out how much money you need to retire.

“How much do I need to retire?” It’s a common refrain among workers of all ages. The closer you are to retirement age, though, the more you’re likely thinking about it.

You’ve probably heard advice like you’ll need $1 million saved to retire. Other people will recommend a certain percentage of your pre-tax income. Others still will tell you that you need $2 million or more.

With so much advice out there, it can be a little confusing to figure out what you actually need. This guide is designed to help you sort through the noise and figure out what you need.

Doing Some Basic Calculations

That $1 million figure had to come from somewhere, right?

The math behind this calculation assumes you’ll be living on your savings for around 30 years. If you retire at age 65, you’d have enough to live on until you were 95 or so.

At least, in theory. A close look at the $1 million figure reveals you’d have an income of around $33,000 if you retired at 65 and lived until 95.

There are a few other problems with this number. For one, it doesn’t factor inflation into its calculation. It doesn’t make allowances for major life events, such as getting sick or being in an accident.

Inflation erodes your buying power. Every year of retirement, your income becomes less in real terms.

People are also living longer. Ninety-five may sound like a very long time from now, but what if you live longer? You might ask the same question if you plan to retire by age 40 or 50.

A Personalized Answer to “How Much Do I Need to Retire?”

As you can see, the average retirement savings goal of $1 million may not be enough. How much you need to save for retirement depends on many different factors.

Perhaps the biggest factor is when you want to retire. Instead of asking, “When can I retire?”, think about when you want to. If you want to retire by 40, you’re going to have different goals than if you want to retire at 65.

You should also think about what you want out of life after you retire. If you’re planning to travel the world, $33,000 per year may not be enough.

You’ll also want to make considerations for things like getting sick. As people get older, they have a higher risk of developing an illness. Your medical bills could put your retirement lifestyle into jeopardy.

Finally, you will need to consider inflation, your other assets, and more.

The best thing you can do is create a customized retirement savings plan.

Estimating Your Living Expenses and Lifestyle

If you’re hoping to retire by 50 and see the world, you’ll need to save differently than someone who works until they’re 70.

So, how much should you be saving?

As we mentioned, it’s important to determine how you want to live after you retire. If you have big plans, you’ll likely end up spending more in retirement.

Even if you don’t plan to travel the world or start a hobby horse farm, you may need more money than you think.

The first step in deciding how much to save is determining how much you’ll need to live as a senior. This is difficult to pin down because it’s difficult to predict the future. You can’t know if you’ll get sick or need to move.

Predicting How Much You’ll Need

One way to predict how much you’ll need is to determine if you’re going to make any lifestyle changes. If you plan to sell your house and rent an apartment, your living expenses may actually go down.

The opposite may be true if you’re globetrotting, even if you sell your home.

Next, think about your current living expenses and your current salary. What would happen if your income were reduced? What expenses could you cut back on to make up the difference?

You can use these estimates to determine how much you’ll need as a retiree. Remember to adjust for inflation, and be sure to factor in medical costs. Finally, you’ll want to multiply the number by how long you expect to be living on your retirement income.

Percent Rules

Some experts recommend using what’s known as the 4 percent rule. This rule says you should withdraw 4 percent of your retirement savings per year.

If you have $1 million in savings, that would give you around $40,000 per year to live on. That’s enough for 25 years.

The 4 percent rule isn’t the worst one to use, but again, you’ll need to consider healthcare, lifestyle, and even the age at which you want to retire.

Deciding How Much to Save

Now that you have an estimate of how much you’ll need in retirement, you need to determine how much you can save.

There are many different tools you can use to get an estimate. An early retirement calculator could help you determine if your goals are realistic. If you’re 30 years old, believe you need $2 million, and want to retire by 55, you’d need to save $80,000 per year.

Is this possible? It may be for some people, but it’s not a realistic goal for everyone. Of course, the sooner you start saving, the longer you have to build toward your retirement goals.

How much should you have in retirement savings by age? Some people will tell you that you should have so much money saved by the time you’re 40 or 50. These are good general guidelines, but they can’t accommodate your unique circumstances.

Get Guidance from the Experts

If you’re asking, “How much do I need to retire?”, it’s time to make an appointment with a financial advisor. We can help you better understand your retirement savings needs. We’ll also help you create a customized plan to achieve those goals.

It’s never too early or too late to start saving. Contact us today to get started.

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This material was prepared by an independent third party.

Luke E. J. Will

Luke E. J. Will was born and raised on a farm in Watertown, WI. His values and ideals were shaped by his hardworking family and are embedded into the relationships he builds with his clients. Luke has built Navigation Wealth Management with Kurt Zipp to deliver the “Navigation Way” of financial planning and asset management to his clients from all walks of life. The “Navigation Way” is built upon Trust, honest conversations, and understanding his clients financial goals.Luke attended the Wisconsin School of Business at the University of Wisconsin-Madison, where he earned his Bachelor’s degree in Finance, Investments & Banking.His favorite hobbies are hunting and fishing with family and friends. He is loves spending time outdoors including snowboarding, skiing, kayaking, and camping while spending any extra hours with his family, watching all the sports teams in Wisconsin play. Traveling, music concerts, and reading are few other interests.