You probably wonder how much money you’ll need to retire. What’s the magic number? For most people, it’s 80 percent of their pre-retirement income, but that might not be the right answer for you. Everyone has different sources of income as well as needs.
So, let’s dive into how much you might need to retire.
Determining the Right Amount of Income So, what’s the magic number for you? For most people, it’s 80 percent of their pre-retirement income annually. If you make $75,000 a year, you’d need at least $60,000 a year in retirement. How much you’d need to save to have at least that much annually varies based on the type of investments you make.
Also, what lifestyle will you lead? Will you downsize and live a simple life, or will you be a world traveler and try new things? Will you work or not work at all? These factors play a role in how much income will need to come from your retirement savings.
Do You Have Other Sources of Income? Your retirement savings may not be your only source of income. Think of all sources of income you might have during your retirement years. Most will likely be supplements to your retirement savings, but any bit you can cut out of how much you must withdraw during retirement helps your money last longer.
How Much Must You Save? Now the bigger question is, how much must you save to reach your desired income goals? If you need $60,000 per year, how much must you save?
It starts with how many years you’ll be retired. If you’ll retire early, you could need as much as 30-40 years of income. If, on the other hand, you’ll retire late, you might need only 10-20 years of income.
While there isn’t a magic number, you should try to stick to the 4 percent rule. This means you don’t withdraw more than 4 percent of your retirement savings annually. This helps your retirement savings last longer so you can get through retirement without financial issues.
So, for example, if you need $60,000 a year and you plan for 25 years of retirement, you’ll need $1.5 million saved. You can play with the numbers to see how much you would need.
Final Thoughts So how much do you need to save for retirement?
The answer is that it depends. It starts with how much money you need to live annually based on your desired lifestyle. Next, you should think about any other income sources you’ll have or how you’ll handle emergencies (health, house, car, etc.) and where you’d get the funds.
Finally, how you invest your money will play a role too. Invest too aggressively and you could put your life savings at risk, but don’t invest aggressively enough and you might not have enough money to reach your financial goals.
Sit down and figure out your plans for retirement, including how many years you’ll be retireto determine your magic number.