How Much Money Do You Really Need In Retirement?

Finding answers to questions regarding retirements can oftentimes be quite overwhelming.

Both due to the fact that there are a lot of things that need to be taken into consideration, even more theories and suggestions on how to do so, and, well, it is intrinsically stressful. That being said though, what information can you lean on for sure?

In this article, we are going to tackle all the variables regarding how much money do you really need in retirement, and how to assess those variables as well.

Planning Ahead Means Acting Now

Before talking about actual how’s and why’s, let’s assess why it is vital that you start acting right now in order to be able to save up the money you are going to need.

The thing is, whatever you save and invest in today can make an enormous difference in the future. In fact, considering how large sums of savings that most people are shooting for are, even a seemingly insignificant 1% increase can mean a great deal over time. 

So, start thinking creatively about different ways in which you can ensure that you save up as much as you can. Experts on this topic from TheEntrustGroup.com explain that one of the ways in which you could do so is by considering LLC. They go on to explain that by utilizing the LLC, you are bypassing your IRA administrator for relevant transactions regarding the associated processing fees. This way, by establishing checkbook control status, you can basically ensure that you’re saving for your retirement and further ensure that you have more funds to invest in your retirement.

Rule Of 25

Rule of 25 is a great guideline to get a grasp on how much you are going to need in retirement. Basically, this rule states that you should multiply your total annual expenses by 25 in order to determine just how much you are going to need to save up by the time you actually retire. 

That basically means that if you, let’s say, plan to spend $50,000 per year in retirement, you are going to need to save around $1.25 million.

It should be mentioned though, while this rule is a good starting point, it is by no means a one-size-fits-all solution. That being said, it’s vital for you to take different factors into consideration in order to get closer to the actual sum of money.

Think About The Lifestyle That You’re Planning For

Surely, everyone has different priorities, and hence a different lifestyle. The best way to assess your future one is by using your current lifestyle as a benchmark. So, start by adding up your living expenses for a single year, and then try and make some appropriate adjustments based on your ideal retirement lifestyle.

Do you expect to drive less since you aren’t going to work? If that’s the case, then you should include the fact that gas expenses are going to be lower. Do you plan to travel more? Include that as well. In any case, be sure not to forget income taxes as well as any costs that are currently being covered by your employer. 

Understanding The 4% Rule

The 4% rule suggests that when in retirement,  it would be best for you to withdraw about 4% of your savings every year. So, if you have $1 million in your retirement savings, you should aim to live off $40,000 annually. Basically, this rate of withdrawal is going to ensure that your risk of running out of money is low.

As with the previously described rule of 25, the 4% rule isn’t an exact science since it doesn’t account for volatility in the market or your exact financial situation.

It’s Vital That You Consider Healthcare Costs

Last but definitely not least, it’s crucial for you to consider healthcare costs when assessing how much money you are going to need in retirement. This is primarily due to the fact that healthcare costs then are going to be way more than what you spend on healthcare now.

In fact, nowadays, it’s estimated that a 65-year-old couple that has retired in 2019 is going to spend around $285,000 on medical costs in retirement, while some estimates shoot even higher, suggesting that those expenses can rise to be staggering $369,000.

In the end, as with pretty much anything, it all boils down to taking time to really plan everything out while having correct assumptions. No person has the same priorities nor the same resources and circumstances, which is why it’s vital that you assess your retirement plan not by relying on a strict set of rules set by someone else, but by molding those rules to your situation.

After reading this article, you are now covered with a basic line of thoughts that you should have in mind when you’re planning your retirement funds and how much do you actually need – all that’s left is to branch that line of thoughts out!