If you are considering retiring then I applaud you for looking ahead to what the future might bring. Some people think Retirement is an age. When in all actuality, retirement is a financial status.
Once you reach a certain level of wealth then you can retire without having to work another job, and just live off of the money that you have in investments. But you might be asking. How much money do I need in order to retire? A lot or a little chances are your retirement number is not as much as you think it is.
How Much Income Will You Need?
Right now you are making a certain amount of money, and living off it. Whether you are happy with what you are making now or not is not the point. When you retire you would like to make the same amount of money or even more.
A couple of factors we can take into consideration is that when you retire you will not need as much money as you do now. Taking into account most likely your mortgage will be paid off and a lot of your bills will be lower as the kids will be grown and out of the house.
So it will be nice to make the same amount of money that you are making now, in retirement, but in actuality we can use a much smaller number. Personally, I like using the same amount of money or more just to make sure that I have enough cushion for when I retire to deal with inflation, cost of living, or any other surprise expenses.
Find out how much income you need to survive your day-to-day life. And once you have that number go on to the next section.
What is your Lifestyle
I talked about this in the last blog but I’m going to revisit it again for this subject. When you think of your dream lifestyle after you retire, whether you are young or old, this determines how much income you would need.
If your dream retirement is just living out the rest of your days in the home and finding a simple passion project to keep you busy, then you won’t necessarily need a lot of money to make that happen. But if your dream retirement is traveling 50 weeks out of the year to various destinations supporting grandchildren or children as well as giving generously to charity, you will need a little bit more money to make that happen.
So before we go to the actual numbers, take a few minutes to think of what your dream lifestyle looks like. Write it down and commit it to memory because we will need it for the next section.
Rule of Thumb 4%
The rule of 4% is something that is thrown around a lot when talking about a number for retirement. This rule states that you should be able to safely withdraw 4% of your retirement fund every year, and still have effectively more money at the end of the year than you did in the beginning.
Another way to look at this is if you take your current income and multiply it by 25. This is your number that you need to retire. And once you accumulate this wealth you should be able to retire and live the same type of lifestyle that you already were.
A tip that I would like to give for this is that most people believe that you should adjust your withdrawals to inflation. If you do that for the inflation number that we had last year you will be withdrawing almost 12% of your earnings which is horrible. They also believe that if your money accumulates more wealth in one year you should still take x amount of dollars out and if your money Has a negative return you should still withdraw x amount of dollars which is the same amount as before if you do this you will eventually run out of money so let me show you how to get around this.
Instead what you would do is withdraw 4% or 3% or whatever your number is each year, regardless of whether your money has a positive or negative return for that year. So what will end up happening is if you have a positive return that year you will withdraw more money than you did the year before but if you have a negative return for that year you was withdraw less money than you did this will to allow you to still accumulate wealth over time and not run out of money in retirement. If you are numbers person check the math and see for yourself, if you’re not a numbers person you’re just going to have to believe me
Rob’s Opinion
The ultimate goal for a lot of people is to retire and grow old, however some people get to this point in their life whether it’s age or physical ability and they simply do not have enough money to sustain themselves in their golden years.
Don’t let this be you, follow the tips that I give and this will put you miles/years ahead of your peers. A lot of times people do not share these kinds of topics but I want to make sure that you have everything you need to be successful in the future.
