How Much Money Do I Need to Retire
This was a question I have asked myself over and over since I was 25. If you’ve read this blog at all you’ll understand that none of my plans have worked out so well. But, I still need to understand how much money I need to retire and whether I have a chance of achieving it before retirement. The answer is also subjective on what type of lifestyle I intend to live and how long I intend to live – both of which are really difficult to quantify from here, but I think I found a solution.
Based on the 4% rule, if you work out what you’re living on now, and decide how much you think you can live on in retirement, divide this number by 4% and you have the amount you need to have saved to retire. For example, I want to retire on $50,000 a year. So $50,000 divided by 0.04 = $1,250,000.
The 4% rule is based on a safe withdrawal rate by William Bengen. This has been challenged in recent times, especially as we are now in a low interest yield of our economy. However, for this exercise, it’s worth sticking to. I’ll talk about the benefits of a 3% rule in a later post, but for now, let’s stick to 4%.
OK so now I know how much I need, after I picked myself off the floor and I had to start to work out a plan as to whether this is even possible. I will keep blogging about this through the working of the plan, but I believe it is possible from here, aged 54.
If you’re in your fifties like me it does not help at all to hear that you should have started in your 20’s. My kids are on the right track, but for me, I have to start where I am because life has not worked out the way I planned. Turns out I’m not alone in this so I’m here to encourage and support you. We can do this. It won’t be easy, but we’ll get there.
How to Start
Work out how much you will really need to retire. If you’re on a higher income now, be realistic about the lifestyle you will need to support or want to support in your retirement. Also, keep in mind that your medical expenses are likely to be higher in your retirement years.
Do not rely on the government aged pension. Factor this out of your equations. If it is still there when we retire (my dad predicted it won’t be) it will be a bonus, but not to be relied upon at all.
Now look at your budget today. This is going to hurt and if you’re like me at all you’re rolling around laughing right now because you don’t have a budget either. I have now worked out one and so far am sticking to it. It’s a necessary step so put your big pants on and face the truth.
Now What
Work out some type of savings plan. What’s left over that you can save? Start putting that in a separate account and we will use that later to invest one way or another. Look at your income. Is there a way to increase it? This was my main challenge and part of this blog is to show you how I’m diversifying my income from now to help me get there.
How much money I need to retire and how much money you need to retire are going to differ. But the road to get there is kind of the same.
So now, take a break, have a drink or whatever to calm you down because if you’re like me, you’ve probably had a minor panic attack.
It’s doable. The worse thing that can happen from here is that you set a goal and only get half way there. It’s better than where you are now. Knowing is better than not knowing. So stay tuned for more info on how to get there, and together we’ll do this.
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