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How Much Money do I Need to Retire On

how much money do I need to retire onWhat may be comfortable for one individual may not necessarily be comfortable for the next. In fact, we all have a different set of circumstances, wants and needs. Therefore, you need to adapt your long-term goals to your own personal situation and aspirations.

But the one common question that everyone asks is “how much money do I need to retire on“. In the following content below I will guide you into understanding just how much you need for retirement.

Save and Put Away as Much as You Can

The main purpose of saving for your retirement, and your retirement fund, is for you to save up enough money to enable you to have a regular comfortable income after you have reach your inevitable retirement. One of your main goals when you retire is to try to maintain the standard of living that you were used to during your pre-retirement.

But this still doesn’t answer your question, how much do I need to save for retirement? Most professionals in the retirement planning industry agree that when you retire you should have enough money/capital saved up to give you a minimum income equal to 75% of your last income before you retire. So for example, if your last monthly income before retirement was $1,000 then your first retirement income should be $750.

Please remember that this initial income also needs to increase annually to keep up with inflation to maintain the purchasing power of your income (this is the main reason we all need annual increases on our household income.

https://www.wealthyaffiliate.com?a_aid=5ee1cc8fAt this moment some of you must be realizing that you are not able to put away money and or save more towards your retirement in order to give you a more comfortable life in your retirement years. Would you be willing to try something out for FREE, without taking up to much of your time? Check out something that is helping others have another income stream and therefore are able to save more towards their retirement. Just click here and have a look at it, after all it costs you nothing, and is 100% FREE! Curious?

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Reasons Why you Don’t Need 100%

Many of you might be asking the question, but why wouldn’t I need 100%? The reasons that you don’t need 100% of your pre-retirement income to maintain your current standard of living before you retire include:

  • you pay less tax in your retirement
  • you are no longer saving towards retirement
  • you are no longer traveling back and forth to work and home everyday
  • remember one your retirement goals? – you should be Debt Free
  • ideally you should now own your own home and aren’t paying rent
  • your children have moved out of the nest and are no longer financially dependent on you

What You Should be Saving

I don’t know your exact age as you are reading this. The reason I am mentioning this is because your age when you start saving will determine how much you should save towards retirement. The following will show you how much money you need to save now to replace 75% of your pre-retirement income when you retire.

How much do i need to save for retirement

The above table assumes that you start saving from the “current age” and that you haven’t built up any retirement savings. These projections also assume that you achieve a “moderate” (+/- inflation + 4%) real rate of investment return on your savings.

Plan Ahead for Retirement

Planning ahead for retirement will give you an idea of what you will need to save for your retirement and the ability to do something about it now. I will help you decide the following:

  • how to preserve your savings and spend it before retirement
  • what contributions you should make towards your retirement savings and your contribution rate should be
  • if you need to save more and where if you are not on target for your 75% goal
  • give you an idea of what you will need to save for retirement

Remember that seeking assistance will help you achieve your retirement goals.

Risks That Can Affect Your Retirement Savings

Early planning towards your retirement and estimating your retirement income are important. But there are some retirement savings risks that you need to be aware of. Here is a summary of those risks:

Retirement savings risks

  • Unexpected Life Events – natural disasters, having an accident, victim of a crime
  • Market Volatility – macro economic factors affecting your investment portfolio & the performance of your investment
  • Healthcare Needs – illness, disability or becoming disabled
  • Longevity – no one knows how long we will live for, the longer we live the longer your retirement savings needs to last.

Focusing on Longevity Risk, this risk can lead to a number of other risks that you should also take note off:

  • Inflation Risk – inflation determined the buying power of your money. When planning your ideal retirement income always remember to take annual income increases into consideration. Retirees living on a fixed income, rising prices of goods and services will erode away the purchasing power of your money. The Rule of 72 is applied here to give you an idea of the effect inflation has on your income. If your fixed income is $1,000 per month today, and the inflation rate is 4%, your $1,000 income will half in +/- 14 years (72 / 4 = 14). This means that a fixed income will buy half of what it could in 14 years time.

 Know Your Retirement Income

Reaching retirement age and knowing that you have not properly planned for that date can be extremely stressful. Hopefully you will now be in a better position to better understand what your retirement income should be in order to give you a comfortable standard of living. This in turn will enable you to determine how much you need to save for retirement.

Please remember to leave a comment below if you have any questions or queries to assist you on reaching your retirement goals.

 

 

 

 

Luis

15 Comments

  1. You’re asking very relevant questions in this article.Though it is true that one can live with a lowered expenditure budget after retirement, anything longer than 10 years after retirement becomes risky because of the devaluation of money. I’ve seen many elderly people living in poverty after 10 to 15 years after they exited their main income stream. In my mind, best is to establish a passive income in time that keeps up with inflation.
    Thanks for a great and thought provoking article.

    • Hello.
      Thank you for reading my post.
      The risks you mention are longevity risks and inflation risks. We don’t know how long we will live for and at the same time our money needs to keep up with inflation.
      The best solution to ggecspecific problem that you mention is to purchase an Inflation Linked Annuity, this will ensure that a reitree’s income increases annually.

      Glad you enjoyed the post.
      Regards

  2. Hi Luis, Just ran across your article about “how much money do I need to retire on”. I know now that its important to start early. I was a secretary and accounting clerk so I never had extra money to invest. Thank heavens that my house and auto are paid now. So now I’m on Social Security and have a part time job. Even though I’m 65 now, I know I can still work on saving. Thanks for informative site.

    • Hello.
      Glad you managed to settle your major debts, that’s great!
      Retiring from our work doesn’t mean retiring from life so I’m really happy that you are still working and keeping yourself busy.

      Thanks for your comments.
      Regards, Luis

  3. Luis, very well thought our and expressed. I thought that the information you provided is spot on and right on track for anyone thinking about retirement soon. Although this is a goal for many folks, I think that sometimes with all the other factors these options are not available to them. For whatever reason some folks do not consider retirement due to factors beyond their control.
    I do however think that your website is great thank you for the information.

    • Hello.
      Thanks for reading my post. The main thing is to plan early and to keep amending the plan as our life changes, our plan is always changing and evolving.
      I am glad that you enjoyed.
      Regards

  4. That table really helped to put things into perspective for me. I guess I’d better get to it. Great write up much appreciated!

    • Hello.
      Thanks for your response and glad that I was able to help you out things into perspective.
      Let me know if you need more assistance.
      Regards, Luis

  5. This article has been really useful on a subject I am interested in but honestly always decide can wait another few years until I worry about!! You have made me realize I really do need to pull my finger out and get on with it! Thanks. x

  6. Good article. There is so much to think about when figuring out how much you need and how to plan for retirement. So many people really don’t know what to do and too many people do nothing. This is a good place to start.

  7. Hi Luis,
    Great information. I’m one of those baby boomers who failed to plan…money was tight, but I passed this info on to some younger friends who will find it educational. great format…Thanks linda

    • Hello Linda.
      Thank you for your comment and glad that you enjoyed the post.
      Wow…thank you for passing on the info to your friends…just send them my link and I will be happy to help.
      All the best.
      Regards.

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