< Blog Posts
March 29, 2022

How Much Do I Need To Retire? The Ultimate Guide

When it comes to retirement planning, there are a lot of factors to consider. How much money do you need to retire? What will your monthly expenses be? How long will your retirement savings need to last? These are all important questions that need answers. In this article, we will provide an in-depth guide on how to calculate how much money you need for retirement. We will also discuss some common retirement myths and mistakes that people make when planning for their golden years. Let's get started!

When Do People Retire?

The answer to this question depends on several factors. First, let's look at when the average person retires. According to a Gallup poll that was conducted in 2021, the average retirement age was 62. However, this does not mean that you have to retire at this age. You can retire earlier if you have enough saved up or if you want to. You can also retire later if you want to continue working.

When Should You Retire?

The most important factor in deciding when to retire is whether or not you have enough saved up. There are several ways to calculate how much you will need for retirement, but a good rule of thumb is to have enough saved so that you can replace 70-80% of your pre-retirement income. This means if you had been earning $80,000 per year in your working years you would want to plan for $64,000 of income in retirement.

How To Figure Out If You've Saved Enough?

The easiest formula for deciding if you have saved enough is to calculate the gap between your guaranteed income and your retirement budget. For example, let's say you will have $30,000 per year of social security income and you have calculated your annual retirement budget to require $60,000. You would have a gap of $30,000. Next, you would multiply the gap number of $30,000 x 25 and this would tell you if you have saved enough. In this example, you would need $750,000 saved to have a comfortable retirement. This rule of 25 times your annual spending is based on the Trinity study which attempts to determine the safe withdrawal rates from investment portfolios.

Avoid These Common Retirement Mistakes?

Now that we know how to calculate how much money we need for retirement, let's look at some common mistakes people make when planning for their retirement.

One of the biggest mistakes is retiring too early because in the Trinity study the assumption is that your money will need to last for a 30-year retirement. With people trying to retire early and with life expectancy rates rising, many of us can expect to live well into our 90s. This means that we need to make sure our retirement savings will last for 30-40 years or more.

Another mistake is not having a plan for inflation. Over time, the cost of living will go up and your retirement income needs to keep pace with inflation. One way to do this is by investing in things like real estate or stocks that have the potential to increase in value over time.

How Do You Determine If You Can Afford To Retire?

The most important factor in deciding whether or not you can afford to retire is how much money you spend. Track your spending for a month or two and see where your money goes. Once you have a good idea of your monthly expenses, you can start to figure out how much you will need in retirement. Today many banks and credit unions have apps that can help you track your spending. Quicken, Mint, and YNAB are tools that you can use to help you track where your money goes.

What Should I Do One Year Before Retirement?

Now that you know how to calculate how much money you need for retirement and some of the common mistakes people make, let's look at what you should do one year before retirement.

One of the most important things you can do is to get your financial house in order. This means getting rid of any debt that you have and making sure you have a good budget and you are sticking to it.

Another important thing you can do is to make sure you have all your ducks in a row with your retirement savings. Knowing how much you've saved and where it's invested, as well as whether your asset allocation will fulfill your requirements and it also means having a good understanding of the different types of retirement accounts available to you and how they work and you will want to know the rules about when you can access those accounts and what the tax implications will be when you do.

You will also want to make sure that you have updated your will and estate planning documents. This includes things like your power of attorney, health care directive, and beneficiary designations.

It is also important to think about how you want to spend your time in retirement. Many people find that they have more time on their hands once they retire. This can be a good thing or a bad thing depending on how you look at it. It is important to have some hobbies and activities lined up that you can do in retirement. This will help you to stay active and avoid getting bored.

How Much Have You Saved?

Do you have a 401k? Do you know how much is in it and what the rules are for withdrawing money from it? Do you have an IRA? What about a Roth IRA or an HSA?

Consider all of your retirement savings accounts that you could access if you were required to do so. Consider not just your retirement accounts, but also all of the money in your bank and brokerage accounts.

The most frequent mistake is to include the value of your house in the calculation. While your house is certainly an asset to include in your net worth it is not generally thought of as a liquid investment because you would need to either sell the house or take out a loan to access the equity to help you with your retirement living expenses.

How Long Does Your Money Need To Last?

This is a question that you need to answer for yourself. It depends on a number of factors including how long you expect to live, how much money you will need to cover your expenses, and what kind of lifestyle you want in retirement.

Some people plan to retire later and may only need their savings to last for 20-30 years. Other people plan to retire sooner and may need their retirement savings to last for 30-40 years or longer.

The life expectancy calculator that was developed by Social Security is a decent place to start when trying to estimate your life expectancy.

Is It Better To Take Social Security at 62, 67, or 70?

This is a question that many people ask and there is no easy answer. The best answer for you will depend on several factors including your age, health, marital status, and how much money you have saved for retirement.

If you start taking social security at 62 then you will receive a reduced monthly benefit than if you wait until you are full retirement age. If you plan to live a long time and have a family history of longevity, you might wish to postpone beginning social security until age 70 and accrue delayed retirement credits. Your full retirement age is determined by the year you were born. If you were born from 1943-1954 your full retirement age is 66. The full retirement age increases gradually for those born between 1955 - 1960. Anyone born after 1960 has a full retirement age that is payable at 67. If your full retirement age is 67 and you wait until 70 to start your benefit you will accrue an 8% increase in your retirement benefits for each year you wait until age 70.

Social Security Taxes

One of the reasons to optimize your social security retirement benefits is that social security benefits enjoy special rules regarding federal income taxes. The provisional income rules say that none of your social security payments may be taxed to a maximum of 85% of your benefits. The taxation of social security benefits will in part be determined by other sources of taxable income. For example dividends and interest income count but qualified ROTH IRA withdrawals do not count when figuring out how much of your social security is taxable. In the Retirement Budget Calculator, we automatically do the provisional income calculations to determine how much of your social security will be taxable. The calculator also allows you to modify the withdrawal order so that you can see how taking income from say a traditional IRA compared with a ROTH IRA might affect the taxation of your social security. If you have not yet signed up for the Retirement Budget Calculator you can use this free calculator to help you with the provisional income tax calculations.

The social security benefit was developed by actuaries. If you start benefits early you will take a reduced benefit but receive more payments. Whereas if you wait to start social security benefits until age 70 you get a higher benefit but social security will make payments for a shorter period. The Social Security Administration developed its formula for it to pay an equal amount of income over average life expectancy regardless of when you start benefits. Because of the fact that single individuals must live past age 80 in order for it to make sense to delay social security, and because married couples' break-even analysis is more difficult because of survivor benefits available, You'll want to build a customized social security plan for your unique scenario whether you're married or single. The Social Security Administration does not have any personal information about your particular life expectancy, so having a thorough grasp of your family's history may assist you in calculating when to claim your social security benefits.

The Best Social Security Strategy For You

In this blog article, we'll go through the top four questions to ask before starting social security benefits. We also put up a YouTube video that demonstrates how to utilize free internet calculators to make better social security claiming decisions.

The decision of when to start social security is a personal one and you should consider all of the factors mentioned above before making a decision. There is no right or wrong answer, but there is an answer that is best for you.

Plan for the GOGO, SLOW-GO, and NOGO Years

It is important to plan for all three phases of retirement – the gogo years, the slow-go years, and the nogo years.

The gogo years are typically the years when you first retire and you have good health, a spouse and friends, and travel is fun. The slow-go years are the years where you may start to experience health issues or the loss of a spouse and travel may not be as fun. The nogo years are usually the consequence of poor health, a lack of resources, a lack of desire, or both.

No matter what phase of retirement you are in, it is important to have a plan. And it is good to think about how your spending will change in each phase.

The gogo years are the best years to travel and explore. You should take advantage of this time and do as much as you can.

It is important to have a retirement plan that covers all three phases of retirement.

The nogo years could involve a time when medical expenses are higher and you may not be able to travel as much.

It is a good idea to have a plan for the gogo, slow-go, and nogo years of retirement. Each phase presents different challenges and opportunities. By planning for all three phases, you can make the most of your retirement years.

Financial Adviser And Retirement Calculator

Deciding to retire is one of the most important financial decisions of your life. It is a good idea to meet with a financial adviser to get professional help with this decision.

A retirement calculator can also be a helpful tool in deciding to retire. The Retirement Budget Calculator can help you figure out if you have saved enough to retire with confidence.

The Retirement Budget Calculator is an online tool that can help you figure out your retirement income, expenses, net worth, and life expectancy.

You can sign up for free to create a retirement budget.

The Retirement Budget Calculator's premium features let you calculate how much money you'll need to retire and how long your funds will last in retirement.

Sign up for the Retirement Budget Calculator for free to get started planning for retirement.

Share On