How Much Money Do I Need to Retire?

There are many types of financial actions that can be taken prior to retirement to make sure that there is enough being saved. This is part of the process of retirement planning and should begin years before an individual will even need to worry about retirement. The amount that is needed to live when retired can vary, but will typically be in excess of one million dollars or more. Many variables are available to find out how much money will be needed for retirement.

The Age to Retire

People are able to retire at any age they feel comfortable. Many may choose to retire when they may be in their fifties or wait until they are between the ages of 62 and 65. The longer a person can work is one of the main factors to determining how much can be saved for retirement. One way to determine an age that is appropriate is to use the date Social Security payments begin. Full benefits are paid whenever an individual reaches age 65. However, most payments can begin at age 62 with a penalty.

How Much is Saved

The amount a person already has saved will be a deciding factor along with age. The amount which has been saved will need to be combined with Social Security payments and any pension payments that are received. This provides an estimate of the amount of funds available per month. If a person has their nest egg built up to a suitable level, then early retirement may be an option.

How Quickly Money Grows Before Retirement

The last five years before a person decides to retire will be the most important for investments. There is the annual rate of return that needs to be calculated. This amount will depend on the type of investment that is being made. Many people can choose to go aggressive in the stock market or be conservative for a modest return. This will depend on the investment options that are selected. A retirement portfolio for an individual nearing retirement should not be overly aggressive.

How Quickly Money Grows During Retirement

Investments that are made during retirement should be modest and not have a lot of risk. Low risk is an important factor during retirement because income is typically fixed. There is little room for having any loss on an investment. Investments with a rate of return between four and six percent are acceptable.

Social Security and Other Income

The amount of Social Security that is received will need to be included with pension payments or other sources of income. This includes dividends that are received and interest that is earned on certain types of savings accounts. Social Security typically replaces about 30 percent of income before retirement. A person may find their age to receive Social Security may go up over time.

Rate of Inflation

Any increases in the prices paid for goods and services means the less a dollar is worth. This means the general rate of inflation will need to be included in retirement calculations. Many people may require a nest egg that is double of what they expect for the next 20 to 30 years.

Annual Withdrawals

The biggest factor to consider when determining how much that is needed during retirement will be the amount that is withdrawn from savings each year. Money should be withdrawn from any nest egg after Social Security payments, pension payments, and other income are received. One thing that will eat up savings in a nest egg is taking frequent vacations and paying taxes. Medical care is another expense occurring during retirement years.

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