We all want the magic 8-ball to answer this question for us. How much you need to retire may not be the same amount your sibling, neighbor, or co-worker needs. It depends on a large number of factors. We’ll cover the most important below.
At what age will you retire? You may not know for sure, but you probably have a goal. If it’s early (50s) you’ll need more than if you’re intent on working until you’re in your 70s.
The younger you retire, the more money you need to live after retirement. If you retire at 50, you may have 30 – 40 years ahead of you. If you retire at 70, you may only have 15 – 20 years. That’s a big difference.
This answer differs for everyone too. What are your plans?
Will you travel or stay put? Will you downsize or keep the same house? What plans do you have? If your retirement lifestyle will look a lot different than your current lifestyle, your financial needs may change. If not, you’ll likely need around 80% of your current income in retirement since you won’t pay the same amount of income taxes and hopefully, you won’t have nearly as much debt (mortgage, credit card debt, etc.).
This plays a major role too. If you’re relying solely on retirement income (401K, IRA, etc.) you have a lot more to worry about than if you have Social Security income and/or a pension to see you through.
Try to estimate your retirement income before withdrawing from any retirement accounts and see where you stand. This helps you understand how much money you need to supplement your retirement income to ensure a financially secure retirement.
This is a big one. Some people retire from their career but still work. They may consult or do something completely different – something that aligns with their passions or hobbies.
Either way, figure out how much money this potential income source may bring in. Chances are it won’t cover all your expenses, but every bit helps. If you can prolong when you withdraw from your 401K or IRA, you’ll have more money in your older years when you can’t work any longer. Just keep in mind the Required Minimum Distributions that get imposed at age 72.
If your retirement portfolio isn’t on track to meet your retirement goals, it’s time to reassess. Can you contribute more? Should you change your allocations? Revisit your goals, risk tolerance, and portfolio performance to determine how to proceed.
Knowing where you stand and where you want to be are the two main factors when ensuring that you save enough money for retirement. The earlier you start, the better off you’ll be, so start saving, planning, and investing today.