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How much do I need for retirement?
Anticipate what you need so you can enjoy retirement in style
Much like stepping on the scale after the holidays, the amount of money you’ll need to comfortably retire is the number many Americans aren’t sure they want to know. In fact, half of Americans haven’t even tried to calculate how much money they’ll need to retire. However, just like those extra pounds, ignoring the problem won’t make it go away. You can’t manage your health if you can’t measure it. And the same goes for your finances. You can’t reach your financial dreams unless you know precisely how much it will take to get there.
Time to get your head out of the sand and do some easy number crunching to find out where you are and where you need to be. Remember this: anticipation is the ultimate power. Losers react; leaders anticipate.
Start thinking about your retirement savings now
Failing to plan for retirement and just hoping Social Security will carry you through retirement is a recipe for disaster. Social Security was never intended to become a replacement for retirement savings, especially considering the extended length of retirement we can anticipate with longer lifespans. Fifty years ago, the average retirement was 12 years. Today it’s 20-plus years. Furthermore, 49% of American households are “at risk” for not having enough money in retirement to maintain their living standards, according to the Center for Retirement Research.
Knowing the answer to “How much will I need to retire?” is the first step to planning your financial future. The sooner you anticipate your future requirements, the sooner you can set and track goals that will get you there.
How much do I need for retirement?
There are several different ways to consider how much you need for retirement. Most people who are wondering “How much do I need to save to retire?” are focusing on the number they would need to maintain the same lifestyle they have today for the rest of their life, without having to work. You can also work toward the ultimate retirement dream: achieving complete financial freedom to do whatever you want with no fear of running out of money. This could include spending your golden years traveling or buying a home in the mountains so you can relax with your loved ones.
While there’s no hard-and-fast “How much do I need to retire comfortably” calculator, there is a reliable formula you can use.
1. Calculate how much money it takes to maintain your current lifestyle
This number isn’t what you earn, it’s what you spend on a normal basis. If you spend more than you make, use that number – but you need to figure out how to reverse that practice! For example, if you make $80,000 a year but live off $70,000, your number would be $70,000. If you don’t know what you spend, now is the time to start tracking your budget. This can also help you determine where you can cut back so that you can save more for retirement.
2. Multiply your number by 20
The next step of the retirement planning calculator is to multiple this number by twenty. This calculation will give you a rough idea of how much you will need to maintain your lifestyle through retirement.
3. Be conservative with your numbers, not overly optimistic
Many financial planners will tell you to multiply your annual income by 10 or even 15. But today, with such low returns on safe investments and with most people looking for financial certainty in uncertain times, it might be smarter to use 5% as a more conservative assumption. Ten times your income assumes a 10% return. Twenty times your income assumes a 5% return.
4. Start building your plan to reach your target number
Think about how to get the best returns in the timeframe you have remaining before you want to retire. Need help considering your options? Think about your asset allocation and dedicated retirement accounts as well as these five ways to reach your financial goals faster.
How much will I need to retire in a higher income bracket?
If you want to travel the world, buy a boat or upgrade your home in retirement, you need to figure out what this type of lifestyle would cost on a yearly basis and use the same process above to calculate your savings. Keep in mind that a higher income may put you in a higher tax bracket, and you’ll always want to research how to maximize your tax benefits in retirement.
The number you come up with may be massive – but don’t be afraid to dream big. With the right mindset and relentless focus, you can go beyond “How much do I need for retirement?” and starting asking “How much do I want for retirement?”
Creating the right mindset
If you are in the wrong mindset, you’ll never effectively answer the question “How much do I need to save to retire?” Why? Because a scarcity mindset means you’ll never attract the wealth you truly need to create a lucrative retirement plan. By creating an abundance mindset, you’ll be grateful for every opportunity that comes your way and understand that obstacles are opportunities for growth.
When you focus on intangibles, you may realize that the question “How much do I need for retirement?” is not really the question at all. It could be more of a question of addressing limiting beliefs about money and success so you can focus on creating a fulfilling career. Where focus goes, energy flows, as Tony says. If you’re focused on doing what you love, you’ll not only master the science of achievement – and financial success – but also the art of fulfillment.
Building a money machine
So how much do you need for retirement? It all comes down to building enough wealth to fund the longest possible number of retirement years. One thing is certain: You MUST build a money machine, harnessing the power of compounding to create an income stream for the rest of your lifetime. In other words, you must automate your savings in a tax efficient manner and utilize an investment strategy that will keep earning in any season. A “How much do I need to retire comfortably” calculator becomes less important when you have the right strategy in place to build future wealth.
Grow your savings to a point at which the interest from your investments will generate enough income to support your lifestyle without having to work. Eventually you reach a “tipping point” at which your savings will hit a critical mass. This means that you don’t have to work anymore – unless you choose to as a means of fulfillment – because the interest and growth being generated by your account gives you the income you need for your life. This is the pinnacle we are climbing toward and where a retirement planning calculator comes in handy.
There are two phases to your investing game: The accumulation phase, in which you are socking away money for growth, and the decumulation, the period in which you are withdrawing income. The journey up the mountain will represent your accumulation phase with the goal of reaching the pinnacle, or critical mass. The goal is to stay on top of the mountain for as long as you can. And when you enter the second act of your life, you will have the freedom to work only if you want to.
Get help answering “How much do I need for retirement?”
What is your number? Are you having trouble arriving at a realistic amount that makes sense? Or are you worried that you’re not putting in the necessary work to build a money machine that will sustain you in retirement? If you need some assistance utilizing a retirement planning calculator or developing a strategy to create a lifetime income stream, consider working with a fiduciary or hiring a Results Coach who can help you on your path to financial freedom.
Remember, clarity is power. Once you figure out your number with a retirement planning calculator, set goals to get there. And don’t forget to enjoy the journey. You can live your life with joy and gratitude every day, not just in retirement.