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How Much to Retire?

Written by Nickel - 17 Comments

Speaking of becoming a millionaire (or not), the most recent issue of Money magazine had some interesting statistics on how much money people think they’d need to retire today.

Based on the results of a national poll:

  • 10% of respondents said $250k-$500k
  • 24% of respondents said $500k-$1M
  • 35% of respondents said $1M-$2M
  • 31% of respondent said over $2M

At the same time, they provided data showing that the median savings for households near retirement (ages 55-64) is just $120k, and that 42% of all workers just guess at how much they’ll need to retire vs. running the numbers.

Kind of scary when you think about it…

What about you? What’s your number? And what are you basing it on? Did you pick it out of thin air, or did you do the math?

Published on November 30th, 2012 - 17 Comments
Filed under: Retirement, Saving & Investing

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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17 Responses to “How Much to Retire?”

  1. 1
    jim Says:

    I’d say something in the $1-2M range would do it for me. I could buy annuities paying $50k a year for that kind of money. So thats one easy way to figure it. Of course it depends on how much money I want/need. I could retire on $50k a year but I’d prefer to have more.

  2. 2
    PeterJon Says:

    There are other points that need to be considered prior to intelligently answering this question.
    .
    1 – Once retired, how much will your monthly/annual expenses be?
    2 – What other income would you have? Social Security, work pension plan (not 401K), investment property, part-time gigs, self employment?
    3 – Once you retire, and based on your health and family history, how many more years do you think you’ll live? I know no one can predict this. The point is, if you retire at 50 and live to 90, your money needs to last you for 40 years. Not the same if you retire at 70.
    .
    This is a great debate and something I’ve spent a lot of time reading about. I recommend reading “The Number” by Lee Eisenberg. Learn about safe withdrawal rate also.
    .
    Wanna have some fun? Walk into a financial services company and say “how much do I need to retire?” You’ll be proposed/sold so many products your head will be spinning for weeks.
    .
    To me there’s only one way: track your spending. Figure out which expenses you won’t need once you retire. Consider the ones (medical for example) that you might be adding. Add a 10% buffer for overages and play with THAT resulting number.
    .
    In conclusion, the only to arrive an answer to that question is to start with the end in mind using your expenses as a starting point.
    .
    PeterJon

  3. 3
    Kurt @ Money Counselor Says:

    I did a spreadsheet soon after my wife and I got married that shows a rough annual family budget until my wife is 99! Lots of unknowns, for sure, but I made conservative assumptions. Every once in a while I dust it off and see how our current reality compares to my projections. Though I was way off–favorably and unfavorably–in a number of areas, overall we’re doing considerably better than I projected, net worth wise. With this tool, we can see how much we need–our ‘number’–to live on passive income, should we so choose.

  4. 4
    Jay @ effumoney Says:

    My number is $7 million, I want to have $7 million in Municipal bonds earning 2% a year triple tax free, that gives me $140k a year in spending power without every touching the principal.

    Ideally I would like another one to two million as play money to take advantage of good investing opportunities and to just play with.

    I know that seems high, but I think it makes more sense to plan to have a lot more then you need then to need more then you have. We live well beneath our means, but what we consider frugal many others would view as excess or luxurious, but it is all relative.

  5. 5
    Nazim Says:

    These numbers are present value of numbers assuming 3% inflation rate.

    Regarding how much you need, I probably could live off of the lower risk portfolio interest generated off of $500,000 in savings. It wouldn’t be fun but I’ll have enough for rent for a small apartment, food, and budgeted entertainment. I can further augment this through part time work such as teaching at a community college.

    What I would want to live comfortably, I think I can live pretty comfortably off the interest generated off of lower risk portfolio of $1.5 million

  6. 6
    RetiredDec10 Says:

    First, you must have a budget for retirement expenses. Then, add up what your projected Social Security and Pension/fixed income will be. If you can pay your expenses with those fixed incomes, you’re going to be in great shape. If not, you can always look into buying annuities to fill the gap. Then any other investments will be “gravy” Should also figure for inflation. I really got into retirement planning at about age 50. Read everything you can get your hands on. Finally, I’d suggest using an on line retirement calculator. Fidelity Investments has a great one which you can input all your data and it will give you a detailed projection which you can printout … Bottom line … it comes to your personal expenses which will depend on what life style you choose … so, the “number” is different for each person. For me … it was $1.5 to $2 million

  7. 7
    Ginger Says:

    Since with health insurance we would need at least $30,000, we would need one million for the first 30 years. Then from 60-death we would need 3-4 million to account for inflation. If we had 2 million right now, we could invest it, and live fine but I would be too nervous to stop working. I would be ok stopping when we have 3 million.

  8. 8
    paul Says:

    Guess I really don’t belong in this group. I’m retired with $15,000 in the bank and $850 a month SS. Plus about $5000 a year Life Estate. Feeling sorry for rest of you that are nervous about not having enough for retirement.

  9. 9
    Mike Says:

    Well I am retired now at. 60 Wife works,retires in 6 months. Our yearly expenses today are about $50,000 with no debt. Our gross income we expect to use is $80,000 in retirement. We will be using less than 1% or out retirement savings yearly. Since our social security and pensions give us almost $70,000 yearly. We also have annuities that will add another $30,000 a year that we start collecting in ten years. Without a major catastrophic collapse we may have plenty to leave out children and still enjoy a better lifestyle than we ever had during our working years plus retiring early. Our number for our nest egg is currently accumulated at $1.2 million.

  10. 10
    BG Says:

    Haven’t exactly done the math, but I know we don’t have enough saved to retire today (current savings rate is 20%). I just pray that one day we can declare we have enough to retire, and that day happens before we are physically unable to work/get terminally ill.

    I’m in my 30s, and am pretty confident there will be no SS system for me once I reach the age of todays retirees. Also, company pensions have been eliminated. Only group who still get pensions are government employees: and those days are numbered as well.

    Retirees today are living comfortably off the backs of todays workers, while todays workers don’t have the peace of mind that the favor will be returned.

  11. 11
    getagrip Says:

    I’ve run my numbers about once a year for some time now. I’ve used Firecalc, Vanguards estimator, and the MSN money estimator. I try to use conservative assumptions, like how much I can put away, how much I’ll need, various interest rates, etc. It’s interesting to compare my projections from years ago to where I am today. It’s nice to see I’m beating the conservative assumptions so far. Also, things do change, like I recently found out my eldest child is going to need another year at college to finish off the degree. So, I need to decide if I let them hang by making them take out loans for everything, take my usual support for the previous years out of hide since the money I’d saved will be gone come this next semester, or something in between (most likely option). All have an impact on how I adjust my plans.

    For what it’s worth my conservative estimate uses: Social Security at 50% of the estimated benefits for myself at 62, a growth rate of 5% on my 401K until retirement and a 4% growth rate after, inflation as 3%, I assume I’ll need my money for 30 years, I assume I’ll be unable to work, I assume I can put away 15% of current income, and I will draw 80% of current salary.

    My less conservative estimates generally use: Social Security at 75% of the estimated benefits at 62 for both me and my spouse, a growth rate of 6% on my 401K until retirement and 5% growth rate after, inflation as 3%, 30 years of retirement, I won’t be able to work, 18% savings rate based on wife’s savings, and will only need to draw 70% of current salary based on not having to pay SS, Retirement, college savings, and mortgage.

    FInally, poor BG should probably try to stop listening to doomsayers. First off retirees paid into the system as well, so no need to bemoan their collection of Social Security now. Secondly I’d hardly describe my ailing mother’s $900 a month with which she had to pay medicare premiums, high prescription drug co-pays, property taxes, utilities, home repairs, etc. as living in the lap of comfort off BG’s back. Finally there will be something around, it’s fine not to plan for it, but there will be something because unless BG’s counting on total government collapse SS is expected to be funded at 75% of current levels past the 2040’s even if they do nothing to change the system.

    Honestly, if BG’s putting 20% away into retirement even without social security he should be in good shape if he has no debt when he chooses to retire. For a rough example say he earns $35K, 20% is $7K, $7K a year at 5% for 35 years is $632K so assuming wages keep up with inflation the $632K is equivalent in today’s dollars and using a 4% withdrawl rate he’d get around $25K or 72% of his salary. With no debt that could be lived off of and if you were getting only 10% of $35K for a social security payback, getting $3500 per year that would put the amount up to $28K or 81% of the original salary. Given he was saving 20% of salary plus 7.6% for social security and medicare no longer having to be paid for, he’s actually earning about the same or more than when working where he was living off of 72.4% of his salary depending if he wants to consider the value with or without some SS assistance.

  12. 12
    BG Says:

    getagrip) couple of points:

    1) you think congress picks leaves off the money tree to pay your mothers SS benefits? No, someone worked their butt off for that money, then it was taxed from that worker and handed to your mother. And the way the SS system is setup, it is the poorest workers that are taxed the hardest by SS, to pay benefits to old people whether they need the money or not (benefits aren’t means tested).

    2) You have more confidence than I to retain a 20% savings rate for 35 straight years. I’ve been working professionally for 15 years and just got to the point of saving 20%.

    Oh, BTW, my company just announced changes to the 401k company match (changes that are not favorable for employees, but save the company/shareholders millions). So now I need to increase my savings rate, just to be able to stay even with where I was this year.

  13. 13
    BG Says:

    One other thing, your mother collecting $900 month in SS benefits is equivalent to me having to save $270,000 to have that same annuity in retirement (at a 4% drawdown rate).

    After 15 years of working and saving, I still don’t have enough saved to equate to the amount your mother is collecting from SS.

    SS may or may not be around in 5 years, 10 years, 20 years — but it is a pretty good guarantee it won’t be around (or will be drastically changed) by the time I’m old enough to ever see a penny from the system. The fact is, there are not enough workers to support the number of people collecting.

    So I’m both having to save for myself, and also carrying the burden of supporting your mother.

  14. 14
    Michael Says:

    All being said.
    I need $80,000/year in retirement to live a very very good life with no debt.

    Of that $80,000 a year it will be obtained by the following percentages of the $80K

    40% Pension
    25% My SS
    20% Wife SS
    15% Retirement Funds

    The 15% of Retirement Funds = 1.5% of my Retirement Portfolio per year to be drawn off.

    This does not include future annuities that could be tapped that could produce between $25k-$30k per year in additional income.

  15. 15
    Richard Says:

    Mike, good for your hard work and diligence to save. By the looks of your plan, the best news is that if SS falls apart you are in good shape to cover it. Your 1.5% draw on your retirement is far below the 4% that the planners look at. You should outlive easily your nest egg. I am far from being in your position and not counting on SS to be like it is today. Those under 50 should be planning a completely different strategy on accumulating retirement goals. The current administration will look for those with your good wealth accumulated and try to suck you down to those people that do nothing to save. More of a Socialist style of government. That is what they are trying to do. Watch for Obama to tax all you wealth even if it stays in your 401s or IRAs. They will tax it all so they can give it to those that cry the blues and want government to take care of them. I would advise to take your SS as soon as you can. They may cut you off in the future from any SS benefits once they see your nest egg. GREAT JOB MIKE! Suck this admin dry the best you can.

  16. 16
    Angelo Says:

    MICHAEL, GREAT JOB! ENVY YOUR POSITION

    What each individual needs to retire is different based on one’s income stream. Once this income stream is known along with expenses $250,000 could be a very legitimate number. They may never need to touch their small nestegg as long as they don’t exceed the income stream to cover expenses.

    Two couples living the same life style have expenses of $50,000.
    Couple A has a income stream of $30,000 and requires $20,000 yearly to maintain that life style.
    In order to maintain that lifestyle they would need a nestegg of $500,000 to cover it.

    Couple B has a income stream of $20,000 and need an additional $30,000 from a nestegg. They would need a nestegg of $750,000.

    Throw in another scenario like Michael
    His stream is $68,000 and needs wishes to spend $80,000 yearly. He needs $12,000 to maintain. He would require a nest egg of only $300,000.

    I am using the 25x factor to estimate the nestegg
    This is a common factor to use for life expectancy of 25 years in retirement.

    (25 x Dollars per year needed) = Nestegg needed. Estimate only.

    This would never cover Hyper-Inflation that can easily happen with today’s environment and government’s outrageous spending.

  17. 17
    Sue Says:

    I am 61. Unfortunately I entered early retirement with the death of my husband. I have been retired for almost two years. I was extremely lucky in that I found a good financial advisor. My incomed is derived from SS, a small military pension and income from 70 percent of my investments. The income from the remaining 30 percent grows my principle as a hedge against inflation. There is peace of mind having a good financial advisor.

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