How Much Money is Enough for Retirement? A Guide to Determining Your Needs
23 Oct 2018
One of the most common financial questions people ask is: “How much is enough for retirement?” Here’s a simple guide to help determine your needs.
Twenty-one percent of people don’t have anything saved for retirement. And thirty-three percent of Baby Boomers have less than $25,000 saved.
Unless you want to be working until the day you die, saving for retirement should be a priority in your life. By saving now, you’ll save yourself future worrying and uncertainty.
One of the most common financial questions people ask is: “How much money is enough for retirement?” Here are a few different guides to help determine your retirement needs.
Big Picture Answer: $1 Million Saved
According to financial experts, you should aim to have $1 million saved for your retirement years.
That magic number doesn’t need to be sitting in one savings account. In fact, you should aim to diversify your retirement savings through the following avenues:
- Retirement accounts, such as a 401K or IRA
- Social security
- Traditional savings accounts
While that number seems staggering compared to your yearly income, it is achievable with a little research and discipline. Consider enlisting the help of a professional to help you with financial planning to ensure a healthy retirement fund.
Follow the Rules
If the $1 million benchmark is intimidating, there are a few financial rules that break down retirement savings for you.
The Multiply by 25 rule shows how much you need in your retirement savings.
The first step is to calculate your annual expenses. This amount will be different, and hopefully significantly less than your annual income. Once you’ve calculated that number, multiply it by 25.
For example, if your annual expenses calculate to $40,000 and you multiply that by 25, you reach the magic $1 million benchmark. You can adjust this equation to account for other sources of income you’ll have in retirement.
Also, keep in mind the Four Percent Rule. This rule states that you should aim to withdraw four percent from your retirement account each year. By only withdrawing four percent, your retirement fund will remain stable due to interest and dividends.
80 Percent of Income
Looking for a more customized solution to discover how much money you need to retire comfortably? Concentrate on your income.
Odds are, you’ve gotten comfortable to a certain way of life due to your income. But with retirement around the corner, you may need to cut back on some of your expenses.
Aim to save enough money to ensure you will have 80 percent of your yearly income for each year of retirement. This involves multiplying that magic 80 percent by the estimated number of years you will spend in retirement.
While this number isn’t exact, it will help you maintain the lifestyle you’ve grown accustomed to.
Retirement will mean cutting back expenses to ensure your savings last. But with the right planning, you can peacefully enjoy your retirement years.
Beyond How Much is Enough for Retirement
Now that you know how much is enough for retirement, you’re better prepared to start saving.
The key is to start planning for the future as soon as possible. Early planning will ensure a healthy retirement no matter if you aim for the $1 million benchmark, use the “Multiply by 25 Rule,” or calculate 80 percent of your income.
Need more retirement help? Learn about the five financial decisions you need to make in preparation for retirement.