How Much Is Enough For Retirement? Just Answer One Simple Question

  •  
  •  
  •  
  •  

[wp_campaign_1]

Do you have any idea how much money you really need by the time you retire? If you don’t, don’t feel bad. To be honest with you, even I have never calculated how much I would really need in order to retire. So how can we begin to figure out a number that will allow us to retire and live our lifestyle of choice? Well, I have searched around a bit for an easy answer and I found that even the “simple” answers are complex.

MSN Retirement Calculator

MSN has a retirement calculator on their website and it looks something like this:

retirement calculator

This, however, is still pretty complex. When I put my numbers in there, it was saying that I need $250,000+ per year to live… yeah… I don’t think so. You may use this tool, but I am going to give you a much simpler process to find out how much money you will need for retirement. In fact, you will only have to answer one question for my calculation!

Editor’s side-note: Please note that there are two ways to retire well. You can develop a consistent cash flow through various business ventures, or you can build a nest egg of money and live off from that. Since not everyone is a natural business owner, I will only be speaking to those that plan to build up a nest egg for retirement.

One  Simple Question to Find Out If You’ll Have Enough For Retirement

In order to find out how much money you will need in order to retire, simply follow the one question process below!

1) How much would you like to live off from per year when you retire (in today’s dollars)?

For me, I would like to live on $50,000 a year. I plan to be debt free, so $50,000 should give me quite a lot of freedom to buy a few things and travel (oh, and pay for a couple of old-age surgeries and pills that I will no-doubt need in those later years).

Now obviously $50,000 today won’t be worth the same amount in 40 years (meaning, today $50,000 might buy me a simple condo, but in 40 years it might only buy me a simple car). Based on history, every 20 years our money becomes half as valuable. So let’s say I am retiring 20 years from now and want to have a $50,000 a year lifestyle. When I retire, I will actually need to pull out $100,000 a year. So how much money should I have put away to do that?

My answer: 25 times your yearly amount.

So, if you discovered that you will need to withdraw $100,000 a year, then you should plan on saving up $2,500,000 in your nest egg. I know that might sound like a huge number, but it is entirely possible if you make a plan to start saving today. At least now you know how much you should be saving to have enough for retirement!

How much money will you need in your nest egg?

If you enjoyed this article, Get email updates (It’s Free!)


  •  
  •  
  •  
  •  
  •  
  •  
  •  

Investing Money Retirement

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

11 Comments

  1. Nice easy math, but don’t forget social security. For a 50k earner, SS will replace nearly 1/2 your final income. That should significantly reduce what you need to save. A far less intimidating number.

    • For me, I often don’t even consider Social Security for my retirement plans because even the Federal government says that the money will run out within the next 25 years. If I get social security, it will be a bonus, but I don’t believe that anyone should bank on it at this point.

  2. Shocking how much you need to save according to that MSN calculator. I assumed I’d be single my whole life, saving tons of money and when I entered 55 for a retirement date, it still said unable. Goes to show how hard it would be for folks raising kids to retire if a single guy’s projections don’t look good.
    Bill Nast – Finance Squiggle recently posted..Stocks and Shares for Beginners

    • It would be tough, and that’s partially why I’m not dependent on only a lump sum of money. With real estate rentals, the rent will increase with inflation along with the value of the property. It’s a great way to earn a living in retirement without having to work 25 hour weeks at Walmart to make ends meet.

  3. The 25x makes sense, because you have the ROR @ 4% in retirement.
    1 / 0.04 = 25. If you think you can squeeze out 6% (a little bigger stretch), you’d only need 1 / 0.06 = 16.67x or $1.67M.
    Having your target be larger makes it a lot easier if you miss it by just a little. 🙂
    Chris recently posted..The lowdown on MYRA accounts

    • Exactly. This post was meant to be extremely simple, so I decided not to go into the 4% Rate of Return and the 4% draw (essentially netting to zero). But yes, you are right on the money with your assessment. While yes, you could reduce your target slightly, it is much better to miss a high target by a small margin than a low one by a small margin. Thanks for the comment Chris!

    • Yup. For me, since retirement is almost 40 years away, my number should really be doubled twice over. So I would need somewhere close to $200,000 per year if I wanted to live a lifestyle of a $50k earner today. Crazy to think about, but definitely good to know!

  4. I don’t consider Social Security in my retirement analysis either Derek. While I plan on stacking up a sizable investment portfolio I will also look into other income producing assets as I move into retirement. But quite frankly I never plan to actually “retire.” I’ll just start working on the things I love around age 45!

    • I’m with you Marvin. I may not be working the job I have now, but I will be living off from my own investments that will provide me the proper cash flow. There will obviously still be work to do, but it is going to be so much more enjoyable!


Add a Comment

Your email address will not be published. Required fields are marked *

CommentLuv badge

Related posts