Retirement 101: How Much Money Do I Need to Retire Comfortably?

The answer to the age-old question, “how much will i have when i retire?” (pun intended).

Knowing how much money you need at each point in your life can help to determine how much money you will have during your retirement and how to achieve it. 

You do not have to keep wondering how much will your savings be by the time to retire or how long will my retirement savings last. Do not let your future be up to just chances, and start preparing now!

Here are some seniors’ money hacks to make sure you have enough money to retire comfortably in the future.

Would you like to keep living the same lifestyle 30 or 40 years from now? If yes then it is best to have 80% of your pre-retirement income to keep living the same lifestyle you have even after you retire. Keep in mind that there are more factors to consider when saving up for your retirement fund. Let’s start calculating!

Income is different from Savings

The definition is pretty obvious but you might be confused about how it applies to your retirement fund. Your entire savings or your entire retirement fund is the lump sum you need to live comfortably during your retirement, and to get there you will need monthly income even after you retire. We will be computing both your estimated needed monthly income after you retire, then after that your entire retirement fund.

Just how much income is enough?

As mentioned above, you need 80% of your current or pre-retirement income to keep up with your lifestyle when you retire. For example, if you are earning a hundred thousand dollars per year now, then you will need to have saved eighty thousand dollars per year after you retire. The missing 20% is considering the expenses you will eliminate once you retire like transportation expenses going every day to work, or your savings.

This is the most common, or average retirement fund computation, but it is up to you if you’d rather downsize your lifestyle when you retire, so you could save a little less, or upgrade your lifestyle, then you’d have to save up more.

The problem is that is only a portion of your retirement needs, you still need to have some income-generating system that will get you to keep going during your retirement.

Fortunately, there are sources that could complement your savings in letting you live most comfortably during your retirement. Social Security Services can help up to 40% of your pre-retirement income, which is a big help to give you ease on your savings.

Not sure how much you are expecting from your Social Security Service? Check your most recent Social Security Statement and see the estimate on what you can expect from it when you retire.

If you have other pension options from your previous or current employment then you can add that into consideration. There are other permanent or sources of income you can predict in the future such as properties that continue to pay rent or insurance benefits you can claim from private insurance companies when you retire.

You should estimate your monthly retirement fund by computing your estimated retirement expenses and your retirement fund sources as mentioned above.

How much savings then?

Now that you have determined your much income you need to have before you retire, we need to calculate the whole estimated retirement fund you will need to keep that lifestyle going once you retire.
There is what we call the 4% rule that says you can withdraw from your retirement fund 4% in the first year. If you have saved a million dollars, that would mean you will have forty thousand dollars on your first year of retirement and adjusting on the next years to keep up with your cost of living. The 4% rule helps you not worry about running out of your retirement fund for at least 25 years.

Here is the formula based on the 4% rule:

Retirement Savings Estimate = Required monthly income * 25

Let’s provide an example. If you are living off $100,000 with your current lifestyle, and you want to keep living the same lifestyle when you retire then you will need $80,000 every month when you retire. To sustain this lifestyle for at least 25 years more, $80,000 is multiplied by 25 and you will get $2,000,000. That is the estimated amount you will need to have saved up before you retire to keep living the same lifestyle you have right now.

Now you can minus the other sources of income once you retire, including Social Security funds and insurance funds you may have, so that you will only need to work on the remaining balance you need to save up for.

THINGS TO NOTE:

  • Your retirement fund amount will largely depend on your preferred lifestyle when you retire and the amount of income you currently have.
  • You should recheck your savings, on the estimate, most Americans are not saving enough for retirement. If you have more money to spare to save, then it is better to do so.
  • You can reach your retirement fund goals better if you are also aware of Saving for your retirement by age.

Retirement Savings by Age

Each stage of your life has different financial situations that can help you determine if you can reach your retirement fund goals or if you need to do some lifestyle change or get more jobs in order to do so.

Knowing that age or stage of life is a crucial factor to your retirement fund savings can help you prepare more effectively.

We will dissect two formulas that can help you reach your retirement fund goals step by step.

Saving by Salary

Figuring how much you should save at various stages of life can vary greatly depending on your salary. It is suggested to have by 30 years old, your accumulated savings equal to your annual salary. 

Start saving at the age of 25 at least 15% off your gross income.

Here is a sample salary and savings benchmark on the different stages of your life.

  • Age 30— 1 x annual salary
  • Age 40— 2 x annual salary
  • Age 50— 4 x annual salary
  • Age 60— 6 x annual salary
  • Age 67— 8 x annual salary

Aggressive Savings Formula

If you want a more aggressive way to save then here is another formula you could go with. Instead of saving just 15% of your gross salary, you should save 25%.

Here is the sample salary and savings benchmark for the Aggressive Savings Formula.

  • Age 35— 2 x annual salary
  • Age 40— 3 x annual salary
  • Age 45— 4 x annual salary
  • Age 50— 5 x annual salary
  • Age 55— 6 x annual salary
  • Age 60— 7 x annual salary
  • Age 65— 8 x annual salary

The end goal of your retirement savings fund

What we are aiming by starting as early as your twenties is to help train yourself to be disciplined with saving. The end goal here of course is to have an ample retirement fund that you can rely on to support the lifestyle of your choice in the future. You have worked hard all your life, and retirement should not be any harder than that. You deserve a comfortable retirement life that would suit your needs and wants.

You can achieve this by creating a retirement savings fund while you are young and sticking to this practice as you age. There is no one perfect way of saving consistently as each stage of life brings about different financial challenges. That is why it is a discipline that should be practiced so you can hone and perfect it. There are also other ways to help you prepare for your future retirements such as Social security funds and insurance policies to be in effect when you retire. These options can ease the burden on you trying to save.

By considering and trying the steps mentioned in this article you will be able to ballpark how much you need to prepare to live a comfortable retirement. These methods are effective but not perfect. You can adjust as you continuously learn and adapt your financial capabilities to save.

There might be days when you save less or sometimes you can save more. As long as you keep on saving and trying your best to stick to your goal then that is one way to ensure your financial stability in the future.

The digits above are only benchmarks to help you keep track of your goal, and what to expect with the amount you are currently saving. You can also use the tips above to know how much to prepare on the different stages of your life to better prepare your retirement fund. It is always better to be proactive in saving and getting ready for the unexpected so that you can not just have secured finances but also for your peace of mind.

The only goal here is to keep going and work smarter with your financial decisions to make way for a brighter and financially stable future.