How Much Money Do I Need to Retire Comfortably?

How much money do I need to retire? This is a frequently asked questions. No matter how you search, you will not have a definite answer. The fact that every individual is different makes the calculation of retirement amount needed a unique figure. Everyone has his own needs and live a unique lifestyle. You cannot compare the one of your friends, neighbours, colleagues or somebody else.

Though the uniqueness, there are always ways to help you to figure out what is the amount you need, so you can retire with confidence.

Rule of Thumb

This is a method of estimating how much do you need based on some common practices. It is forecasted that you need about 80% of your last drawn income prior to your retirement to support your post retirement life. We assume that some of your commitments, namely mortgage, car loan and children's education costs may have been fully settled by the time you retire.

If your last drawn pre retirement income is $5,000 per month or $60,000 annually, you may need about $4,000 monthly or $48,000 annually after your retirement, at present value of course. This is a mere estimation and it may not be accurate enough as there are more factors to consider.

Adjusted Expense Method

This is a method which take the relevant details of your possible income and expenses after your retirement. To start with you may have to identify your source of income after your retirement, including your Social Security, pension, 401(k), IRA, savings, investments etc.

The next step is to look at your expenses after retirement. Will you still be paying for your children's education, mortgage etc. How much will your living expenses be? Do you have any hobbies you wish to take up after your retirement? Will you be travelling or going for vacations and how frequent? Do you have enough insurance? If not, how much do you want to set aside to pay for your medical bills should you need medical assistance?

Then, it comes the question of how long do you want your money to last? This is very much related to life expectancy. From there, you can calculate how much money do you really need to retire. And don't forget, the outcome figure is in present value and you need to take inflation into your calculation before you can come out with the accurate and final one.

How much do you need to retire comfortably? Though the figures may be different from one individual to another, you may need not less than $1,000,000 nest eggs at present value to do that. The calculation process is always a customized and complicated one. If you are not sure, get assistance from your financial advisor.

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