How Much Money Do You Really Need To Retire?

Everyone wants to know, “How
much money do I need to retire?” First of all, it’s great that you’re asking yourself
this question having enough for retirement doesn’t just happen. It’s a coordinated
effort and that effort is easier if you have a goal in mind, so how much money do
you need to retire?

How Much Money Do You Really Need?

The real answer is that it’s
different for everyone but let’s start with a general rule and break down how that
can vary most studies agree that in order to retire. You will need about 12 times
your annual salary at retirement age if that sounds like a lot that’s because it
is that’s why it’s so important to say Or as I like to think of it paying your future
self, but if that number sounds intimidating, let’s look at all the ways. You can
build up to that. First of all that total amount you need for retirement does include
Social Security.

Most people have been paying
into Social Security a little bit with each paycheck every year that they work if
that’s you can expect to receive a monthly benefit check in retirement to maximize
your monthly check. There’s a couple things you can do one make as high as salary
as you possibly can.

Okay, you were probably already
doing that one but to work a full 35 years because that’s how many years the Social
Security Administration is basing your benefits on and as a bonus. If you’re making
a higher salary toward the end of your career, which is quite common. You can work
more than 35 years to increase your monthly social security benefit check 3 delay
retirement.

What’s The Proper Retirement Age?

We here like to say that 70
is the new 65 when it comes to retirement age for more details on calculating your
expected monthly social security benefit and To optimize that check out the link
in the description below. But even then Social Security will not cover all that
you need in retirement in its benefit overview document the Social Security Administration
makes it clear Social Security was never meant to be the only source of income for
people when they retire it is designed to replace a percentage of your income depending
on how much you earn for very low earners Social Security can provide up to 75%
of your retirement needs for medium earners about 40% for high earners. About 27%
of the rest of your retirement funds will come from whatever you have saved. So
it’s important to make sure you are saving the best place to start if it’s available
to you is an employee savings plan most commonly. This is a 401k if your employer
offers one make sure you’re using it. This is a tax-advantaged account for saving
meaning you don’t have to pay any taxes. Now on the money you contribute to this
account plus according to the Bureau of Labor Statistics roughly half of companies
offer 401K match. Up to an average of three percent that means as an example that
if you contributed three percent of your paycheck to this account your employer
will match it with another 3% That’s free money. Make sure to save at least enough
to get the full employers match but ideally a solid personal savings goal is 15
percent of your paycheck including any company match. So if your company will match
up to 5% you should personally save 10% of your paycheck into your workplace retirement
account for a total of 15% saved.

Using Your 401K

By the way, if you don’t have
a workplace plan, you can still save in an individual retirement account and Ira
or if you are self-employed you can use a solo 401K the beauty of all these retirement
accounts is that your money grows in two ways first, it will grow as you said Ali
contribute to it each month, but second all the money in your account will be invested
and will grow all on its own through the magic of compounding interest for a quick
example investing three thousand dollars per year for 40 years at an annual rate
of Sent yields over 750,000 dollars come retirement time that may be enough for
people with a relatively low cost of living but it might not be close to enough
for folks that head into retirement with a lot of expenses. That’s why it’s also
important to think about the money you have going out when you’re making your retirement
plans.

Maybe you had children who
had since moved out of your home consider downsizing. If you live in an expensive
area consider moving somewhere with a lower cost of living maybe even moved to a
state with no state income tax that means fewer taxes on Social Security benefits
401K withdrawals and other retirement income. There’s a reason Florida is such a
popular retirement destination.

There isn’t a one-size-fits-all
answer to how much money you need to comfortably retire but understanding the 12
times income rule realizing that Social Security is just a part of the retirement
picture and adjusting expenses will put you on the path to finding the right figure
for yourself.