What’s The Minimum Amount Of Money You Need Before Retiring?
It’s a fact: Retirement comes eventually, but it doesn’t come cheap.
Which means the million-dollar question is: How much do you need to successfully manage your retirement all the way through? There isn’t one catch-all answer for every individual. Lifetime earnings differ. Savings vary. Lifestyles change. And life expectancy isn’t one-size-fits all. In other words, what works for one person’s retirement may not work for another’s.
But there are certain guidelines that might help you start thinking about how you can retire and live the type of life you imagined when you had your nose to the grindstone all those years. Here are some options to consider when thinking about and planning your retirement.
The “Multiply By 25” Rule
Simply put, the “multiply by 25” rule requires you to think about how much annual income you’d like to have in retirement, then multiply that by 25. The figure you come up with is how much you should save for retirement. For example, if you’d want to live on $60,000 a year during your retirement, you would need to have $1.5 million saved; if you can get by on $35,000 a year, you’d need to save $875,000.
While this rule might look good on paper, it’s difficult for a young person who’s still working or might even just be starting out to know how much monthly income will be needed to not only survive but to live comfortably and enjoy life decades from now.
The 4% Rule
The 4% rule takes into account the idea that you need to have enough money set aside so you could live on 4% withdrawals each year. Inflation complicates this equation, and in addition it’s based on the thinking that retirement savings should sustain you for a minimum of 30 years. The limitations of this rule become apparent if you want to retire early, if you plan to keep working into your 70s, or you think a long life might not be realistic for you.
The creator of the 4% rule, William Bengen, recently suggested that 5% might be a better percentage marker given the current level of inflation.
Saving – In Any Amount – Is Key
How much should you save for retirement? That’s the million-dollar question. And the answer is: save something. Save whatever and whenever you can. Invest your savings, if possible, so that it will grow. Today, you can find many free or low-cost resources that can put you on the path to stable, low-risk investing.
Consider checking into Betterment, an automated investment platform that’s a great resource for new investors. Blooom offers an independent robo-advisor that specializes in managing 401(k) and 403(b) employee retirement plans, as well as Thrift Savings Plans (TSPs) for federal workers and military members. And if you’re looking to get a better handle on your short- and long-term financial goals, Facet Wealth can connect you with a financial planner who can offer personalized advice and planning.