It seems in recent years that people have become more obsessed with retiring early. Just type in “couple retired at 30” into Google and tons of results will show up for people actually writing about retiring around their 30s.
I remember when I was younger and in school, I would think to myself, if I could retire and not work that would be a dream come true. I’m sure that is still a dream for most people. To be able to live a life not worrying about working to provide a living. It comes with the idea that you would need a certain amount of money in your bank to live on in order to retire.
So what is it? What is the magic number that allows someone to retire?
10 or so years ago the golden rule had been to hit $1 million dollars in assets for a couple to retire. In fact I still see articles to this day about building a $1million nest egg. Experts claimed this would allow you to retire comfortably and do the things you wish to do in retirement.
Now I hear and see questions that people ask me, can I retire on less than $1 million or what is the magic number? Well it actually depends. Because the answer is not that simple and everyone has a unique set of circumstances.
Here are considerations for your retirement:
How much will you need to spend on healthcare? How much will you need to spend on your lifestyle? What kind of lifestyle do you want? Do you plan to give your money away? Or do you plan on leaving nothing? And the list could go on and on.
The question starts with how much do you need and how much do you want to live on? This will give you a start to the nest egg question. So if you think you need $60,000 to live on, there is some math involved to get you to the number you need to have saved up to last a lifetime.
For example if you need that $60,000 to last for 35 years you would need at least $2,100,000 right? Wrong, there is something that we have to factor in and that is called the time value of money. A simple concept that takes into account your nest egg growing through investments and allowing you to withdraw the money needed. So if you were to make at least 4% on your money over 35 years withdrawing $60,000/yr you would need about $1.1 million. (assuming you would run out of money one day after you turned 100 and you retired at age 65).
But how can we forget the saving grace, social security. If you were to include social security at a rate of say $20,000/year. You would only need to take $40,000 in withdrawals, meaning you would need to have about $750k in your nest egg with the above assumptions.
Let’s say you don’t need $60,000 but could live on $40,000. That means you could retire at 65 with around $375k. including $20k in social security. If you don’t think you would live until age 100 more like age 90, you would need even less. Or perhaps you have a combination of retiring around 55 and living until 85. that would still be 30 years of retirement. What amount would you need?
You see everyone has a different vision of retirement. Some of us think we will just sleep in everyday and watch grand kids or some of us want to travel the world and stay active in our community. Either way developing a solid plan is the first way to get there.
It’s like taking a long road trip. We get distracted by a lot of things along the way but we know there is a final destination we are driving to. How much you need will depend on that final destination. Maybe retirement is far away, or maybe it is closer than you think, either way if you don’t know how much you need to retire you could be on the road a lot longer than you need to.
Want help figuring out if you have enough or what you need so that you can retire? Why not contact me to get a free 30 min consultation.
This is a hypothetical example and is for illustrative purposes only. No specific investments were used in this example. Actual results will vary. Past performance does not guarantee future results.