How Much Do I Need to Retire?
As financial planners, the most common question we’re asked is “how much do I need to have to retire the way I want?”.
We get this question so often that we decided to create a single page cheat sheet that helps people determine just how much money they need at retirement depending on how much they want to spend each year in retirement. This cheat sheet works best if you are aiming for a traditional retirement starting at or after age 62. We used the 4% withdrawal rate as a baseline, but this is not a hard and fast rule, more of a guideline to give you a general idea of the ballpark number you need to be at to achieve these withdrawals.
*For anyone wanting to retire early, you’ll want more in-depth financial planning and I would encourage you to schedule a meeting to build out what that looks like to give yourself the best chance of making that happen.
This graphic also does not account for inflation, so this would be applicable to a person retiring this year at age 62. Because all of these numbers theoretically inflate at the same rate, all you would need to do is inflate the “portfolio amount needed” number by whatever you think the average inflation rate will be from now until your retirement year (a good rule of thumb is 3%) and you will be able to apply this to your exact situation. Here is an inflation calculator that you can use for that calculation.
As you can see, as portfolio withdrawals become a bigger part of your retirement income, the need for a larger nest egg becomes much greater.
Here’s an example of how I would use this to calculate wanting $100,000 of income at my age 62, we’ll assume I’m married by then and use the “couple” sheet. In today’s dollars, that would mean I need $1,612,000 by my age 62. If I inflate this by 3% per year that dollar amount becomes $4,956,550. We can then take this calculation a step further and figure out exactly how much I need to save each year and even each month. You can use this calculator to figure out what your monthly contributions need to be.
Here’s how it works out for my situation. If I assume an 8% annual average rate of return, my potential spouse and I would need to save and invest $1,612 each month or about $20,000 per year to be on pace to hit this goal. While that may sound intimidating, it’s important to know that this level of savings is proposed as a couple, so it is $806 each month for each person. This is only 15% of a $65,000 salary which is extremely doable.
Go ahead and use these numbers on your own situation. How much do you want to live off of in retirement? Are you on pace to retire the way you want?
Will