How much do you need to retire? The answer is not so simple
Retirement is the American dream. It is a chance to finally relax after decades of hard work. Some are excited to retire, eagerly counting down the days until they become eligible, while others enjoy working and wish to put off retirement as long as possible.
While each person has their own ideas of what retirement means to them, just about everyone has the same question:
How much do I need to save before I can retire?
In truth, there is no guaranteed answer, but you can start by using the rule of “4 percent.”
In essence, the “4 percent rule” speaks to how much you can take out of your retirement fund each year to live a comfortable lifestyle.
Basically, it works like this. Let’s assume you make $75,000 a year on average and save 15 percent of your pay over four decades of work. Then, you will have saved $450,000 by the time you retire at 65. From there, implementing the rule, if you only take 4 percent out each year thereafter, you will be left with $18,000 a year for you and your spouse to live off of. That is without any social security added in. When you combine that with the social security you receive (currently the average retiree is receiving about $1,500 a month), you and your partner are left with a perfectly reasonable yearly salary of $54,000 per year. How does that sound?
Of course, these figures have to be adjusted based on how big you want to live. But more importantly, the amount of money you need for retirement also depends on where you live.
If you are residing in a rural city in the midwest, that $450,000 might be more than enough, but if you live in more expensive cities then you’ll need much, much more.
For instance, if you want to live and retire in Los Angeles, then you should have close to a million bucks saved up. If you want to retire in New York, which is considered the most expensive place to live in America, you should have at least $2.2 million in your accounts.
You will also want to think about what you may be spending your money on in retirement. Lodging and food is one thing, but many don’t factor in potential medical expenses or the fact that they might live longer than they believe they will.
Here’s a major factor that people often overlook: Are you adjusting for inflation while you save? The money you have saved now might not be worth the same when you retire.
There are a lot of questions that you have to ask yourself, but if you feel overwhelmed then use the many tools that the internet has to offer. Utilize the many online calculators that can take your particular scenario into account and get you on the right track.
This goal can be achieved
Saving for retirement may seem like an impossible feat, but you may be surprised to hear that there are a number of ways that you can begin to earn your retirement fund, and the sooner you start, the better.
Saving for the future begins with looking at what you spend, creating a budget and sticking to it. Invest any extra money you have left over into bonds, IRAs, and high-interest savings accounts to maximize your retirement potential. A good rule of thumb is saving 15 percent of income each year throughout your working life. That puts you on track to replace about 85 percent of your final year’s salary for 30 years of retirement without worrying about some gigantic number. If you have not been saving at that rate, you may need to adjust your savings plan or your retirement expectations.
Contact a local financial advisor if you need additional assistance.
Let’s face it; no one wants to work forever. Retirement is a chance to relax and enjoy your elder years. You certainly don’t want to work until your last dying day, so look at your financial options now so you don’t have to worry later.
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