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Do you wonder how much money you need to retire comfortably? The answer to this question is not a one size fits all sort of answer. There are guidelines and general rules you can follow to estimate the answer to, “how much money you need to retire comfortably.” However, the answer is different for everyone.
Every person has their own unique set of circumstances that changes the answer slightly or in some cases, drastically from the estimates. It’s important to consider what those circumstances are when creating a retirement savings plan. After all, this is your future we’re talking about and nobody cares more about it than you!
A great way to start planning for retirement is with a nicely laid out road map that takes you through the various steps to calculate your unique answer.
Why Is It Important To Know How Much Money You Need to Retire?
The answer to this is clear, but many people do not have a retirement saving plan let alone a written plan with actual substance behind it. You do not want to end up working in old age until the day you die. Your body will start to give out and it will be increasingly difficult to find work as you age.
Unfortunately, despite these realities, a recent TransAmerica Center study found that 35% of Americans have no retirement savings plan. If you do not want to find yourself:
- unable to retire when you hit 65
- having to work part time to support yourself in retirement or
- worse, being forced out of retirement because you ran out of money
Then, you need to develop a retirement saving plan that fits your individual needs and lifestyle.
What Prevents You From Determining How Much You Need to Retire Comfortably?
In order to get on board and finally commit to putting a retirement savings plan in place, it’s imperative to understand what has been stopping you from creating one this whole time. It’s only when we confront what’s been holding us back, that we can truly overcome the roadblocks we have setup.
Some of the more obvious reasons you may have not created a retirement savings plan are:
- A need for instant gratification
- Retirement age is far away
- Lack of knowledge
- Seems too complicated
Ah, instant gratification. Who doesn’t love it! You can forget about instant gratification in the long journey needed in saving for retirement. It can be difficult to get excited about saving your hard earned money to enjoy some day in your future.
The best way to combat this is make contributions to your retirement savings account automatic. A company sponsored 401K plan makes this easy. Definitely sign up for one if you have the option.
Most employers will match up to a certain percentage of your investment. So, if you aren’t signed up with your company’s 401K plan you are likely missing out on free money.
Another way to combat instant gratification is to occasionally check in to see how much your retirement savings nest egg is growing. The faster and larger your retirement savings grows, the better you will feel. Of course, this could backfire if the economy takes a nosedive so tread lightly if you’ve been hearing about stock market declines.
Most financial institutions send quarterly statements on your retirement accounts. Checking your retirement accounts anymore frequently could drive your crazy. 3 months gives enough time for any major bumps or drops to even out and provide a more realistic view on how your retirement accounts are doing.
Retirement Age Is Far Away
There is never a good time to start saving for retirement. However, it’s been proven over and over the sooner you start the more money you will have when you retire. This is thanks to the power of compound interest.
Compound interest is where the interest on the money you have invested in a retirement account earns interest. Over time, that interest will earn interest and the cycle will go on forever until the funds are completely withdrawn.
It is wise to start investing as soon as you start working. The money you invest into a retirement account in the early days will amount to a significant sum of money in 40 years.
Invest as much as possible when you’re young. This will do 2 things:
- Teach you to live with less
- Grow that nest egg faster
If you play your cards right, this combination could result in financial freedom well before the age of 65. Financial freedom offers you the option to work when and where you want. For some this means, they never work again while for others this means they can pursue a hobby.
Lack of Knowledge
Most people understand they need to save for retirement. They put the minimum into their company 401K to get the full match their company offers but they haven’t thought much beyond that. Some people put more than that in and a few others max out the yearly contribution limit.
However, most people don’t understand how much they need to be saving to retire by a certain age. Americans can start receiving Medicare at 65 and 100% of social security benefits starting at 66.
This doesn’t mean you must wait until 65 to retire. It simply means you will have to pay for medical expenses yourself until 65 if you retire before then. It also means you will have to fund your early retirement with other savings.
You can withdraw money from an IRA starting at age 59 1/2 without penalty. If you retire before that, you have a few options to fund your early retirement.
- Rule 72t allows you to withdraw money from an IRA before the age of 59 1/2 without paying a 10% penalty. If you’re looking to take advantage of this rule, there are strict rules you need to follow, so this might be one of those times to consult a financial adviser.
- You can also put money into a taxable brokerage account. This type of account allows you to invest in the stock market just like a 401K. The difference is you are responsible for paying taxes on capital gains, but don’t have to wait until retirement to withdraw the money without penalty.
- Start working on a side hustle that can create enough money to cover your living expenses. It’s amazing how little you need, if you get your house paid off and don’t have to save for retirement. $2,000 a month may be all you need.
So, how much money do you need to retire comfortably? That depends on your unique situation. Obviously, the more you can save the more options you will have later. It is recommended to save 15% of your income yearly if you plan on retiring at age 65.
It’s Too Complicated
Yes, without a roadmap creating a retirement savings plan can be daunting. It’s hard to know where to even begin. This can often prevent people from taking action.
With a good road map, you can make sure you:
- can fully retire at age 65
- don’t have to work part time in retirement
- don’t run out of money
Use This Retirement Savings Plan Road Map To Retire Comfortably
Understanding why it’s important to plan for retirement and what’s been holding you back is the first step to creating a successful retirement savings plan. You’ve just read through step 1 of the Ultimate Retirement Savings Plan Road Map.
This is your future. Take the 2nd step in the road map to have a rock solid retirement savings plan that fits your unique situation and goals.
The Ultimate Retirement Savings Plan Road Map
Most Americans recognize they’ll need at least $1,000,000 to live comfortably in retirement. However, according to a TransAmerica Center study, over 35% of Americans do not have a retirement savings plan and only 19% have a written strategy.
Don’t be one of those people. This series will walk you through the importance of planning ahead for retirement all the way through how you can boost your current investment strategy.
Take control of your future by planning wisely. It’s never too early! In fact, the sooner you start the better off you’ll be.
- Understand the importance of having a retirement savings plan that meets your needs, not the average person’s needs.
- Review your current expenses and see if you can cut costs anywhere to save faster for retirement.
- Use your current expenses to estimate what your expenses will be like in retirement.
- Plug your unique and individual estimated retirement expenses into 2 tested guidelines to calculate YOUR ultimate retirement savings goal.
- Discover why a Health Savings Account (HSA) is the gold standard for retirement savings and how to make it work best for you.
- Understand the different types of retirement accounts and which ones are the best for you to invest in.
- Learn about costly mistakes you will want to avoid when you invest your money in retirement savings.
- Wrap your head around the fees associated with investing, particularly avoidable ones charged by a financial adviser.
- Understand the different types of mutual funds available and how to determine which one(s) are the best to invest it.
- Review your investments and explore ways to know if they are working for you.
Retirement Expense Planning Worksheet
Use this expense tracker to record current expenses and estimate future expenses. This tracker includes tips on how certain expenses will change for the better or worse in retirement. Get started recording your current expenses today and feel better prepared for tomorrow.
Don’t have enough time or energy to work through the entire road map now? No problem. Just pin it or bookmark it to save for later.
How Much Money Do You Need to Retire Comfortably?
The amount of money you need in retirement will vary based on the age you are when you retire. The earlier you retire the more money you will need. The later you retire the less money you will need.
Some people have family obligations that will affect the amount of money they need to save for retirement. Other people may know their lifestyle will change drastically once they retire.
Maybe you will leave the hustle and bustle of city living when you retire for isolated country living. However, another person may finally get their opportunity to travel abroad for months on end.
Whatever your plans in retirement are, they are sure to make the answer to, “how much money do you need to retire comfortably” different then someone else’s. Take the time now to figure out what your magic number is. You’ll thank yourself later!
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