How Much Do I Need To Retire?

by Guest on May 25, 2011

dollar-weightIt’s the #1 question consumers have about their personal finances: How much do I need to retire? If you ask 10 different financial advisors this question, you’ll receive 10 different answers, only because the answer depends on many different variables. Putting the variables aside however, we’ve outlined a simple, but effective strategy to help ensure you’ll have enough to retire.

How Much Do You Need Save to Retire?

Many financial advisors agree with the 4% rule when estimating how much you’ll need to save to successfully retire. The 4% rule stipulates that you can withdraw 4% from your retirement portfolio the first year of your retirement and adjust your withdrawals annually based on inflation. The first step in knowing if you’ll have enough in retirement is to first answer how much money you’ll need or want to live off each year. Think of this as your salary you pay yourself in your retirement years (Most advisors recommend replacing 70-90% of your pre-retirement income in retirement). So the question isn’t, how much do you need to retire, but how much do you need each year to live off in retirement? Here are a few examples of how big your nest egg will need to be based on how much you want to live off of each year and adjusting for inflation as necessary each year following.

  • $30,000/ year = $750,000 retirement savings
  • $50,000/year = $1.25 Million retirement savings
  • $75,000/year = $1.875 Million retirement savings

So now that you have a good estimate on how much you will need to save to retire, the next question is, how do I get there?

10 Tips to Help Ensure You’ll Have Enough For Retirement

  1. Pay off your mortgage before you retire. Your mortgage or rent is the biggest annual expenditure and eliminating this cost will save you tens of thousands each year.
  2. Work part-time in retirement. You can only play so much golf, right?
  3. There is no get rich quick scheme that works, so don’t try them
  4. Ask a professional financial advisor or planner for assistance (we highly recommend a fee-only one)
  5. Know what you want and can realistically expect with regards to your lifestyle in retirement. If you only have $500,000 in savings, buying a Ferrari to celebrate your retirement probably isn’t a wise investment.
  6. You don’t have to eat dinner at 5pm every day to get a good deal. Check out Groupon.com or LivingSocial.com to get great deals on local restaurants and more
  7. Grow a garden and make your own favorite fruits and vegetables
  8. Ride your bike to commute around town. It not only keeps you in better shape than your neighbors, but will save you hundreds in gas.
  9. Ditch the cell phone and call your family and friends for free using Skype.
  10. Save early, save often, and save more each and every year until you retire.

This guest post was written by James Garvin, Co-Founder at FiGuide.com. Retirement should be fun and worry free so rather than worrying if and how you can retire successfully, sign up for FREE with FiGuide.com and get exclusive, professional advice that helps you achieve your dream retirement plans.

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