Money Needed to Retire: When Will You Have Enough?
Do you have a date in mind when you'd like to retire? To work toward your retirement goal, you should also have an idea of the amount of money needed to retire and how many years it will take you to get there.
Decide How Much You Need
First, estimate the income you'll need in retirement. For example, if 25 percent of your salary goes to taxes and retirement savings, you'll need 75 percent of your salary to maintain your lifestyle. If you plan to travel more or move to an area with a higher cost of living, you'll need income that's equivalent to a larger percentage of your salary. On the other hand, if a large part of your income is going to your children's college tuition or other expenses you won't have to worry about in retirement, you might be able to get by with a lower percentage.
Set a Goal for Your Net Worth
Once you know the income you'll need, you can set a goal for your net worth at retirement. Although there is no one right answer, there are some guidelines you can use. One is that it's generally safe to withdraw 4 to 4.5 percent of your savings a year, according to Forbes. So if you want to replace $60,000 in income a year, and you expect to receive $15,000 a year in Social Security, you would need between $1 million and $1.125 million. Other guidelines that might be a little more achievable suggest saving eight or 10 times your salary by retirement in order to replace 75 percent of your salary in income, CNBC reports. According to those guidelines, if your salary is $80,000, then you should save $640,000 or $800,000.
Estimate Your Social Security Benefits
To make sure your predictions are in the right ballpark, check how much Social Security you can expect using a retirement estimator. The value of your benefit goes up if you delay retirement by a few years past the standard retirement age, according to the Social Security Administration. Thus, it's a good idea to look at estimates for retiring at a few different ages to learn how your benefits could change. If the estimator gives you a result that's different from what you expected, adjust your savings goal.
See How Much You Have Now
Add up your savings, including cash, 401(k)s and other retirement accounts, home equity and investments to find your current net worth. Now you can compare that to your savings goal to calculate how much more you need to save by retirement.
Set a Realistic Date
Enter your current savings amount, age and income into a retirement calculator. Try entering a few different retirement dates to see what percentage of your income you'll have to save annually before you have the money needed to retire. You can then set a goal for your retirement date.
As you can see, there's a range of recommendations for how much you need to retire. That's because different financial planning models make different assumptions about how many years you'll spend in retirement, how well your investments will perform and how much you'll receive in Social Security.
Since there are many variables that go into planning for retirement, no single calculation can give you a definitive answer. It will help to talk to a financial planner to confirm that your planned retirement date makes sense for you.