There is no magic money number for a perfect retirement. A basic formula begins with the amount you make each year times the number of years you expect to live beyond retirement. A few decades ago, a million dollars in a retirement account meant you were set for life. But now, with the rising uncertainty of global events and population density keeping the cost of living high, a million dollars might not cut it anymore.
Retiring at 65
Retiring at 60
Retiring at 55
Retiring at 50
Retiring at 40
The average life expectancy of Americans is 75-82 years old. Seventeen years of your current income plus five years of padding is a good starting point. However, that estimate does not factor in cost-of-living increases, where you retire, or any unforeseen medical needs. That’s why it’s always a good idea to speak with a financial planner.
Some financial institutions claim you need to save eight times your annual income by age 67. But you can only start taking out social security at the age of 62. You would need an additional two years of income that doesn’t include your social security benefits. A financial planner specializing in comprehensive retirement planning can look at your finances and let you know if you’re on the right track with a financial plan.
More often than not, you would need to speak with a financial planner to create a comprehensive plan to retire early. Seven years income without the assistance of social security benefits and penalties on when you can pull from IRAs and 401(k)s can make a considerable impact on your financial longevity.
Retiring early is ideal, but how much money you need to retire is best left to a financial planner to help determine. They can help with investments, 401(k) plans and more. They will take a comprehensive look at your finances and lay out the best roadmap for your retirement journey ahead.
If you were ambitious or still live with your parents, you could save half of your paycheck every month and possibly reach the amount you need. But more often than not, to retire at 40 you’ll need a strong financial plan.
Factors to Consider
There is no planning for the unexpected when estimating overall retirement needs. There are many factors that allow one person to retire early including spending needs, how much you earn on investments and current living situation. Most of these questions can be answered by a financial planner.
Estimating overall retirement needs – understanding the bills you have now and how long you’ll have them is the first step to understanding when you can retire.
Adjusting spending needs – in retirement do you plan to golf every day? Does your commute put a large strain on your current finances? Are your kids still dependent on you or are they supporting themselves? Are you going to buy a season ticket rather than watch from home?
How much will you earn on your savings? – Talk to a financial planner to learn more about what savings plan you’re part of and if there is any opportunity to earn on savings.
How long do you expect to live? – If you’re going to party like it’s 1999 for the golden years of your life maybe you don’t need as much in your retirement as you think. Health and wellness play a big factor in determining life expectancy. That should be a conversation you have with your family.
How much will you be able to withdraw from savings each year? Learn more about minimum distributions with Fidelity’s RMD calculator. Talk to your financial planner about your specific plan to learn more.
