When it comes to retirement planning, isn’t this the million dollar question?! How much do you – really – have to save for retirement? Presumably, that means a comfortable retirement with no, or at least few, money worries. Of course, no money worries might be a bit optimistic, but at least no substantial worries about finding yourself without basic necessities, like food and shelter.
Perhaps it is the million dollar question because many tell us the answer is also a million dollars? Not necessarily. The answer can be as varied as the people who are asking the question.
How much you really need to have saved for retirement? In contrast to many others, we have a simple formula for this. However, before we talk about this simple formula, we need you to know one thing:
It’s not so much the formula as the thinking behind the formula.
If you understand the thinking, you can put your worries to rest and, even better, turn them into action.
How much do you need to save for Retirement? Three simple steps:
And, here’s why …
Lots of things could happen, but let’s separate them into one of three categories:
For sure this is rather simplistic, since you may lose money some years and make much more than 4% in other years. Like we said above, it isn’t so much the formula as the thinking behind the formula. Think in terms of how many years you need your money to last, and what kind of return you think you could get.
Maybe you think you can make more than 4% per year? Note that 4% times 25 equals 100%. So, if you think you can make 5% every year, then you just need to save 20 times your income needs [20 x 5% = 100%]. If you’re nervous that you’ll make only 3%, then you could save 33 times [33.333 x 3% = 100%].
Once you see how this works, you can decide what you’re comfortable with. You can also adjust as your savings grow and your situation changes.
So, instead of worrying, start doing the math!
At RetirementWorks, our mission is to provide independent, unbiased and factual information solely for educational purposes.