How Much Do You Need To Retire?

Retirement planning is something everyone should think about when they enter the workforce. Many young people avoid this thought because they feel they have all the time in the world, when in reality they do not. I had this mindset and I am now 33 trying to scramble to save enough to retire. My goal is to the retire by age 55, however if I have to go until 62 I will. I pray I do not have to work until I am 70.

If you have kids and they are working in high school, college or just started their careers, please teach them about retirement. Tell them to save at least 12%-15% from each check. They will thank you later and you will have peace of mind knowing your child will be ok later in life. I see too many people in their 80s and 90s working and it is very sad. No one should have to work until they die.

1. Assess Your Current Expenses

To determine if you are ready to retire or still in the planning stages, it is important to assess what your expenses are. Your expenses in your 20s and 30s will be different compared to your 50s and 60s, and even more so in your 70s and up. However, you can still figure out a rough estimate of what you will need. My goal is to only have my wife and I to worry about when I am age 55-62. This makes our expenses low and easier to account.

Determine what your expenses are for debts, kids, education, health care and miscellaneous items that are specific to your age. Accounting for these and staying up-to-date on these, will help you plan as you go.

2. Consider Your Desired Lifestyle

Accounting for expenses is important but accounting for your lifestyle is just as important if not more. How will you live after retirement? Will you travel the world or find a nice quiet place and enjoy your time?  What will you do when you retire? You need to ask yourself this and your spouse and figure out what kind of life you want to live once you leave the workforce.

A couple lives on a cruise ship permanently. They only pay $38,000 a year and travel the world. That is a sweet deal if you do not mind living on a boat 24/7 and dealing with thousands of people every year for the rest of your life. This is what you must consider, is this the lifestyle you want? On the other hand, do you want a quiet life?

3. Calculate Your Expected Retirement Age

Now it is time to consider the age at which you will retire. The age you pick will be the deciding factor in determining your financial goals. If you plan to retire early, you will need a large pool saved up. If you plan to retire a little later, you have more room to work with when it comes to saving.

According to Fidelity, you should hit milestones as you age. Every decade you should hit a milestone. If you are lacking, you need to increase your savings. These are estimates by Fidelity and these numbers can change depending on your financial goals. Use these as a guide when setting up your goals.

• By age 30: Have the equivalent of your current annual salary saved. If you earn $50,000, you should have $50,000 saved for retirement at this age.
• By age 40: Have three times your annual salary saved. If you now earn $60,000, you are on track if you have $180,000 saved for retirement by 40.
• By age 45: Have four times your annual salary saved.
• By age 50: Have six times your annual salary saved.
• By age 55: Have seven times your annual salary saved.
• By age 60: Have eight times your annual salary saved.
• By age 67: Have 10 times your annual salary saved.

4. Account for Inflation

Many people do not think about this topic about when it comes to retirement. The power of the dollar will rise or fall by the time you retire. With today’s economic situation and corporate greed at an all-time high, inflation will rise greatly by the time you and I retire. We need to account for this and plan accordingly.

Historically, inflation has averaged around 3% per year. By factoring in inflation when estimating your retirement expenses, you can ensure that your savings will be sufficient to maintain your desired lifestyle in the future.

5. Determine Your Retirement Income Sources

You will need to determine how you will earn your income once you retire. Your 401(K) will account for 2/3 of your income and your social security alongside any additional sources will make up the other 1/3.  I suggest investing with a Roth IRA and using that to complement your 401(K) account. The Roth IRA will be tax-free and if you invest wisely will generate an estimated 10% annual return plus dividends.  This account if done early in life, can add roughly $2,000 to $4,000 extra per month tax-free.

6. Consult with a Financial Advisor

I am not a licensed broker, financial lawyer or stockbroker. I am simple a guide who loves to invest. With that said, I urge you to consult a financial advisor so you can plan your life out and make sure you are on track for retirement. A professional can analyze your financial situation, consider your goals, and help create a personalized retirement plan. They will evaluate your current assets, projected income, and provide valuable advice on investment strategies to help you achieve your retirement savings goal.

Conclusion

Determining how much you need to retire can be overwhelming, but by considering your current expenses, desired lifestyle, retirement age, inflation, and potential income sources, you can gain clarity on your retirement savings goal. Remember, retirement planning is a long-term process, and regularly reassessing your financial situation is crucial. Start planning early and seek professional guidance to ensure a comfortable and financially secure retirement.