How Much Do You Need To Retire?

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Photo courtesy of theregister.co.uk

The answer is, unsurprisingly, “that depends”.

This is a subject that has been on my mind a lot the past several months, so I wanted to see if I could find some concrete advice in articles; I was surprised at how many of the articles coming up held relatively shallow advice. Several articles were barely a few paragraphs that effectively said, “That depends on the lifestyle you want when you retire”, like this three paragraph Time.com article with a 60 second video. The information from which can be summed up as: you’ll likely need 70-80% of your pre-retirement income, if you paid off your mortgage, have excellent health, and plan on being a bump on a log, and up to 100+% if you plan on actually doing things; evaluate what your retirement expenses will be by analyzing your current spending; don’t look at your retirement account until you retire.

After reading a couple of rather disappointing Time.com articles, I came across one from the AARP (American Association of Retired Persons) that was more helpful. They too had the “much touted” advice of having a nest egg that pays out 70-80% of pre-retirement income, (though none of the articles that said it had a source for the information as far as I saw), and also mentioned that many financial consultants are suggesting their clients to have at least 100% of pre-retirement income for at least the first ten years, because spending typically does not slow down in early retirement. Other suggestions offered are having 10-12 years worth of income, or the general advice of $1-1.5 million saved by retirement.

Several articles stressed that retirement was an individualized issue, and that using a retirement calculator is a good way to get an idea of what you might need, so that’s exactly what I did. Using bankrate.com’s retirement calculator, using my own age, an after retirement income of $30,000 a year from 65 on, 6.5% interest rate, and a 3% inflation rate, puts my required retirement savings at $1,897,957.57 if I plan on being retired for 25 years. That’s a lot of money. Higher interest rates would lower the amount needed to save for retirement since a higher portion of what you took out would replace itself each year, but marketplace rates are not guaranteed, and could just as easily drop, leaving you with less than you were planning on for retirement.

On the other hand, if you have no debts, and live quite frugally, you could retire on as little as $10,000 a year, (not that it would be fun), but even for that you would need $632,652.52 squirreled away. And not just set aside, you need that $632,652.52 to be properly and safely invested at 6.5%.

So the message really, is whatever your number is, start planning for it. You don’t want to become part of the 2/5 of households 55-64 years old that have ZERO retirement planned, (source), especially since we’re on track to have social security benefits cut nearly a quarter by 2035. (Source, source, source)

 

 

 

 

 

 

 

 

 

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