How much money do I need to retire? Is $1 million enough or should it be $2 million? The amount depends on your salary, lifestyle, and several other factors. Throughout your career, you have had several strategies to save money for your retirement.
Additionally, your employer and the government have different tools to boost your retirement savings. However, that won’t be enough to replace your salary.
To retire comfortably, you must save consistently throughout your career and invest smartly to generate sufficient income. Below are some tools and valuable information to get you started.
How much money do I need to retire? During your retirement, your expenses decrease. Generally, you no longer save for retirement, drive to work, pay your mortgage, or make life insurance payments, and you can benefit from many senior discounts.
However, you may encounter more expenses if your medical bills increase, if you wish to travel, or decide to start spending lavishly.
To determine your ideal retirement number, we begin with your salary. Many experts agree that during your retirement, you can live on 80% of your pre-retirement annual income.
What does this mean? If you make on average $100,000 per year while in the workforce, you should live comfortably with $80,000 per year during your retirement.
Target Retirement Savings
How much money do I need to retire? If you don’t know if you are on target to meet your retirement goals, you can compare your savings with the following benchmarks.
By age 35, you should have 2x your annual salary saved up;
- 40: 3x annual salary
- 45: 4x annual salary
- 50: 5x annual salary
- 55: 6x annual salary
- 60: 7x annual salary
- 65: 8x annual salary
If you retire at 65 and make an average of $100,000 annually, you should save $800,000. Saving up this much looks easy on paper, but achieving it isn’t as easy. You might not reach your retirement savings goal only with a regular account.
Fortunately, you have access to many sources of retirement income. Some are periodical and predictable, while others are much more risky and potentially rewarding. Let’s explore them below.
How Much Money Do I Need to Retire Sources
If you live in the US, you are lucky to have access to Social Security. This benefit doesn’t represent a significant percentage of the upper class’s annual revenue.
However, if your yearly earnings are $50,000, your Social Security income represents 35% of your yearly income. If you’ve worked most of your life paycheck to paycheck, that will not be enough to maintain your lifestyle when you retire.
On top of Social Security, you might be eligible for a pension plan from your employer. That amount should not be taken lightly if you’ve worked for certain industries. Multinational companies, mining, military, and others will pay you extremely well to compensate for your hard-working years.
Unfortunately, saving for retirement is much more difficult if you are self-employed. How much money do I need to retire? The following section is very important if you want a steady income and a comfortable lifestyle during your retirement.
Investing for Your Retirement
If you aren’t comfortable with your retirement fund with only your savings, Social Security, and a pension plan, there are other ways to save throughout your life. How much money do I need to retire? Let’s look at various ways to receive passive income before and during retirement.
1. Rental Property
If investing in the stock market isn’t for you, you can put your money into something you can see and touch. How much money do I need to retire? If you have enough money, buying a rental property is an excellent way to earn extra income.
During your retirement, your property will be ideally free and clear. With no mortgage to pay, rent money goes directly into your pockets. There is little risk, and the proceeds are periodic and predictable.
2. Stock Market
Unlike a rental property, the stock market is unpredictable and risky. However, more risks can potentially bring more rewards. Ideally, you want to start investing as early as possible.
Every paycheck, you should put some money aside. When you earn a promotion, you should increase your contributions if you feel comfortable. Let’s look at a fictional example below.
At 20, you start an investment account with $100. Every month, you deposit $200 into stocks or a fund. If the average annual return is 6%, at 65, you will have over $500,000 saved. Not everyone can put away $200 monthly, but even $25 can go a long way.
Investing isn’t easy; not everybody has the time and energy to pick stocks or funds. Unlike all stocks, most mutual funds and ETFs grow with time. Some of them can also earn you dividends. You need a mix of stocks, funds, and other investments to build a diverse portfolio.
If you want to understand your various investments, we can help you with our online trading courses. Otherwise, you can always visit a financial planner and begin your journey with them.
3. 401(k)
If you live in the US, you can access different retirement plans. Many American employers offer their employees a 401(k). The United States Congress created this to incentivize Americans to save for retirement.
It offers them tax breaks either before (Traditional 401(k)) or after their retirement (Roth 401(k)). Furthermore, employers are encouraged to match their employees’ contributions.
The proceeds are generally invested in a low-risk mutual fund. You can’t withdraw from your 401(k) before turning 59½ to avoid penalties.
How much money do I need to retire? According to a Vanguard study, the median balance of Americans between 55 and 64 is $71,168. That isn’t a negligible amount of money.
4. IRA
How much money do I need to retire? You don’t have access to a 401(k) if you are self-employed. Fortunately, you can open an Individual Retirement Account (IRA).
There are four different types of IRAs, depending on your employment status. Depending on your household income, there are limits to your contributions and income deductions.
Traditionally, your contributions and profits grow tax-free. You choose how the money is invested, such as stocks, funds, or other investment vehicles. It will be taxed once it is withdrawn.
Final Thoughts: How Much Money Do I Need to Retire
How much money do I need to retire? To conclude, we each live different lifestyles. We need about 80% of our average annual income to retire comfortably. It’s easy to say, but hard to achieve. Thankfully, there are many ways to do so.
Your savings are a big contribution, but you can get help from your employer, rental property, the government, or the stock market. The earlier you consider retirement, the better your chances of retiring comfortably.
Frequently Asked Questions
Can You Retire $1.5 Million Comfortably?
You can retire comfortably on $1.5 million if you budget and spend wisely.
Can I Retire at 60 With 500K in Savings?
Yes, you can. From age 65 to 85, you would need to live on $34,000 a year to make it last.
How Much Money Do You Realistically Need to Retire?
The goal would be to save 10-12 times the amount of your preretirement income. How much money do I need to retire depends on what you make and your investment strategies.
How Long Will $2 Million Last in Retirement?
It would depend on your lifestyle. Typically, you could live off $80,000 a year for 30 years if you budget and spend wisely instead of living opulently.
