Financing Life Post Retirement

The most commonly raised concern for retirement is how much money do I need to retire to? Although it’s a reasonably logical question for one to determine the money they need to have saved before they retire but the answer to this depends on you.

It depends on your lifestyle, which consists of the way you used to live when you had a steady income, the leisure activities you are involved in, and the plans you have for after you retire.

All this is dependent on your circumstances as well if people have been leaning on you for financial support, your financing needs might be different. A person supporting his kids as well as his wife might need to save up more than someone who lives alone and has no dependents.

The Rule of Thumb

Watch this video to better understand how much money you need for retirement

According to experts, the best way to answer the dilemma of how much you need to have in savings before retirement is by using the 70%-80% rule. This rule of thumb states that every person will require approximately 70%-80% of the income they were earning after they retire.

This rule is based upon the assumption that by the time one reaches the age of retirement, their expenses reduce as they are most likely to have paid off their mortgage, student loans, and most if not all of their children are at a stage of financial dependency.

However, these are just assumptions; therefore, the results would be different for every person. This rule, however, does provide you with an estimated number of your expected expenditures in a year after retirement.

After you’ve established a ballpark figure of what to expect your yearly expenses to look like, you can now move on to the total money you need to retire to. Here experts recommend the 4% rule; this rule is based on the fact that if a person uses 4% of their entire savings every year, they are most likely to have a comfortable life.

401k retirement savings plan

Hence to calculate the total amount, all you have to do it multiply the expected annual income by 25. E.g., if one person’s desired income is $40,000/year, that person needs to have a total of $1 million (40,000 x 25) to retire to. Although this may be taken into account that these are just estimates and do not take into consideration the changing economic environment.

Final Verdict?

How much money you retire to can also be dependent on the fact of how many assets you own. You might consider a house you own that has not been in use and put it on the market as a rental property to get a steady income every month, or you could even put it up for sale and earn some extra cash.

Therefore it can be said that there is no one way to determine for sure how much to retire to, but you can surely ponder upon the few mentioned ways to get an estimated figure that will help you get on the right track.

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