This question is thought of and asked thousands of times from individuals to financial media outlets. How much savings is enough for me to retire? Well I have a simple solution for all of you right here on this great website. The idea for this particular post came to me when I was having a random discussion with a co-worker about food. A light bulb came on in my head and I thought I can solve this simple question easily. The answer is very personal to you because each person’s financial portfolio is different. What makes sense to me might not correlate with your investing strategy, because of this investing tends to be viewed as complicated. But do not fret as there are no wrong answers here today.
The magical financial figure that you might have in your head might be overly inflated. So let’s break it down for everybody to digest the information easier. Long gone are the days when people needed 2 million dollars to retire. I have read where 400K will be enough to cover someone’s expenses for life. But on the other hand if you want to live like P.Diddy then you might need the interest of 15 million bucks to buy yourself a G6 airplane.
I will hope you can: 1 keep up with the thought process on the personal finance strategy I will share with you, 2 you can be open to this new way of viewing how much saving is enough for your retirement.
How Much Savings is Enough: (Calculations)
Step 1: Add up all your expenses X 12 = (Annual Figure)
Step 2: Add on top of this figure any vacations you wish to take every year. (Estimate based on last price paid)
Step 3: If you foresee being Mortgage debt free, subtract the mortgage payment annually not the taxes. (Renters skip this step)
Step 4: Add an additional 15% as a buffer to protect you for inflationary costs.
Step 5: Divide the total figure by .04 = Magical Retirement #
This is the figure you need to reach to happily cover all your expenses and annual vacations for at least 25-30 years in retirement. The interest from the final figure will pay you the set amount annually to cover your expenses. As long as you stay on track to only withdraw 4% every year from the nest egg account, it should cover you in retirement. In addition to this Social Security will give a bonus every month after the required age. If you own a home and pay off the mortgage sooner than later, you can reach your magic number in less time.
Obviously if you retire earlier than 45 then you have to consider that the nest egg must last you 40 years, the additional time must be taken into consideration.
Let me know if you have any issues with the calculations above?
Comment if you were shocked to finally see with your own eyes the figure based on how much savings is enough?
Rich Uncle EL
PS: IF you retire before 60 then make sure you have the right balance between retirement and non-retirement accounts in order to cover your expenses for the years until your 60 birthday. (After 60 years of age, you can access retirement accounts penalty free
Based on my spending now (I rounded up to $40,000), I'd need $1.15 million.
Although in my retirement I don't plan on buying household equipment as I will have pots and pans…. I think if I was truly retired, I wouldn't be spending as much as I am today.
That is the point I wanted to drive home today, people over estimate and if you learn to live frugally that nest egg figure is much less. Thank you for reading.
You can reduce that amount greatly if you include a part time job that pays $20,000+ a year during your retirement years and includes some benefits. Who wants to retire and just sit on their butts, I want to be productive.
Yes I agree if and when we all retire we will maintain a busy lifestyle as to not get butt sores from sitting all day. I will use my time to volunteer, visit family, bike ride, run my business.