How Much Do I Need To Retire?
The question of how much I need to retire is one that many do not ask until it is too late. Retirement is something you should prepare for at an early age, so that you will not be struggling to meet your goal later on down the road. For many in this recession it is hard enough to meet their bills, let alone saving money for retirement. Saving money toward your retirement years is not as difficult as many are led to believe.
There is no magic number to determine how much is needed to retire. A good rule of thumb is to save 15% of your gross income. This will compound over the years to set you up for a decent standard of living not far from how you may live now. Most, if invested properly, should be able to double their total investment by retirement age, but remember there are never any guarantees with investments.
Some of the biggest mistakes that are common are:
Deciding to retire early
Withdrawing from your retirement early
Withdrawing too much at retirement initially, or annually
The biggest thing to remember is not to retire early. Your Social Security benefits will drop by 20% or more on an annual basis by retiring early. Not reitring early allows for your nest egg to increase, and accrue interest. It also means that you will not be withdrawing from your retirement yet, increasing your income upon retirement. The amount needed to retire will vary from person to person, and decade to decade depending on the current state of your economy.
Based off of this rule if you retire at age 65, and expect to live till 90 years-old the rule of thumb is to withdraw what is necessary to pay off ALL debts, then divide your retirement up by 25 years. This will give you your annual income allotment based on your savings, and investments. Some will also calculate their annual income by simply taking 4% of their nest egg, and that is their annual income.
If you want an average income of $40,000 dollars (USD) annually, you will need a total of one-million dollars in your retirement savings. This may appear to be a lot of money, but considering how interest compounds, you would only need around 400,000-500,000 if invested properly. All this is not accounting for any other additional income you may have either including, pensions, social security, or any other current investments that you could be deriving income from.
If you are unable to put that amount back, just remember to save 15% of your gross income. Saving 15%, being invested properly, in combination with other income will make up generally at least 50%-85% of your pre retirement income.