I bring this up on the heals of another post member cajunmuscle started " Anyone Else Feel Guilty Spending Money?"

Shortly after my wife and I were married we bought our first home. As soon as we did this we started looking for life insurance.
The person we talked to set us up with a policy based on our needs at the time.

He also did financial planning so we asked " How much money in savings do you really need to retire?" his response was, "you need to have at least a million dollars in the bank."
This has been the same answer we have been told over the years by several financial planners we have dealt with.

I was also told it should be a percentage of your last years income, around 60% to 80% but how are you going to know what that will be 30 to 40 years from now when you retire.

I know the more money you have in the bank when you retire, along with social security and any other retirement vehicles like pensions you have the better off you will be.

I know this can be a tricky question for people based on, where you retire to, what will you do in retirement(travel, hobbies and the like), possible medical needs, will you still work part time to keep busy or for a little extra income.

I know having kids can limit the amount of money you are able to save over the years to get to retirement. My wife and I never had kids so that would be a tough one for us to answer.

I have known people to skimp and save almost everything the can, only to get to retirement, and not be able to physically do the thing they have dreamed of in retirement.

I have known people who did not spend their money in retirement because "they were saving it for the children or the grand children".

I have come to the table with the idea, you spend a little as you work toward retirement to enjoy life because you never know if you are going to make it to retirement.
I have told people spend some of it and enjoy life but you still need to put something away to retire.

So my question stands "How much money in savings do you really need to retire?"

It all depends on what you want to do in your retirement and what your annual expenses are. If all you want to do is hunker down in a paid-off house and scrape by in a low cost of living location, it can be done quite cheaply.

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I know this can be a tricky question for people based on, where you retire to, what will you do in retirement(travel, hobbies and the like), possible medical needs, will you still work part time to keep busy or for a little extra income.

Answer this question and you will know. All depends on the amount of spending and length of retirement.

That said, the rule of thumb I heard was $2.0mil per person. Sure it can be a lot less but again, it depends on your lifestyle and how frugal you can be.

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Originally posted by 71 TRUCK:

So my question stands "How much money in savings do you really need to retire?"

There are folks on this forum who know this topic better than I, but I will say that it's different for each person. Anyone who says $X is the magic number doesn't know what they're talking about, IMO.

Probably the most important thing to know about how much money you need to retire is knowing how much you spend now. What you have saved is not nearly as important. You can't know how much you need until you know how much you're going to be spending. The only way to have an idea of what you'll be spending in retirement is to have a very good idea of what you spend now.

That being said, here is some info I got from a retirement forum when I was considering retirement back in 2017:

Some Important Questions to Answer Before Asking - Can I Retire?
1. What are your expenses? No, your real expenses that you have tracked carefully over a period of at least two years, not some rough estimate that you just pulled out of thin air. If you don't know where your spending flow goes now, you've got no business turning off the income flow.

2. Are you sure those are your expected expenses in retirement? How will you pay for health care? And how much will you pay? Have you gotten any quotes? If you're accustomed to group health insurance through your employer, prepare to be shocked. What is your plan for long term care? "I'll just shoot myself" is not a plan.

3. No, really, did you account for giving money to your children or grandchildren for college or a home or something like that? Or supporting your elderly parents or your "boomerang" kids? How about repainting the house, replacing the furnace or roof, buying a new car? If you live long enough, you'll likely do all of these things.

4. Do you plan on any major lifestyle changes? For instance, will you buy a vacation condo on Maui or take up Formula 1 racing? How will this affect your spending?

5. What are your sources of income in retirement? No, the real, honest-to-God actual sources of guaranteed money (or as close as it gets), not some vague idea that you'll pick up a little part time income on the side.

6. Do you know what your pension really will be or are you just guessing? Have you taken into account any discount for retiring before some specified age? Will you have a survivor provision, and how much will that reduce your pension? Will you get a COLA?

7. Have you gone to the Social Security Administration website to calculate how much you will get from social security? If you or your spouse ever had a non-social security job, will you be subject to the GPO or WEP?

8. Have you included taxes in your retirement income calculation? Be sure you understand how your state of residence and the IRS will 'reach out and touch you' once you give up your paycheck for an IRA withdrawal, SS, pension or other source of retirement income. If you use FIRECalc, you need to gross up the spending number for taxes.

9. What is your nest egg? And by nest egg, we mean real measurable dollars in some account that you can value on a daily basis and liquidate bit by bit as you need money, not raw land of speculative value, not the current home equity for a house that you're living in with no plans to move from in the near future, not your collection of Star Wars action figures, and not some inheritance that you may or may not receive in the future.

10. Is there some reason to believe that you will not live to be at least 85?

11. Once you know the answers to all these questions, did you run your numbers through FIRECalc? What does it say?

12. If the unexpected should happen and someone dies prematurely, how much income will the survivor have, and will it be enough to continue with the same lifestyle? Don't forget the impact of the resultant change in tax status (i.e. - married filing jointly to single)

ETA: There are also good calculators online. They are very helpful for giving you an idea of how much you will need based on your age, spending, etc.

- https://www.fidelity.com/calcu...-calculator/overview

- https://investor.vanguard.com/...nt-income-calculator

- https://www.schwab.com/retirem...etirement-calculator

Whatever number you come up with, don't forget to then adjust it for the 30-40% inflation that has occurred during the past few years!

First off $1,000,000 is not enough to retire for someone of my age, not even close.

I plan to save unit I can generate a retirement income equal to, but hopefully a little higher than my salary in the last few years before retirement.

Realistically, how many people are going to retire with 2 million per person? I've got two pensions, although small they will cover living expenses. My 401k will be for the remainder. I'm retiring at 60, will take SS at 62 and my wife will get half of my SS at 67. The older I get the more money I'll have, theoretically anyway.

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I plan to save unit I can generate a retirement income equal to, but hopefully a little higher than my salary in the last few years before retirement.

^^^^^^^^^^^^^^^
Yep. Good answer.

Some good information already posted. No one size fits all answer but for a general guideline I'd say use the 4% rule and look at the anual income. That should give you an idea of how much you need to save to generate it.

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Originally posted by nhracecraft:
Whatever number you come up with, don't forget to then adjust it for the 30-40% inflation that has occurred during the past few years!

That scares me, I'm quite a ways from retirement, but I'm sure people who retired just before 2020 were thinking their retirement pot was stocked enough. Then shit hit the fan and inflation hit everyone hard.

I wonder if some people had to go back to work.

if not for healthcare premiums, I could retire a lot sooner.

So that has to be factored in.

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Originally posted by Edmond:

quote:

Originally posted by nhracecraft:
Whatever number you come up with, don't forget to then adjust it for the 30-40% inflation that has occurred during the past few years!

That scares me, I'm quite a ways from retirement, but I'm sure people who retired just before 2020 were thinking their retirement pot was stocked enough. Then shit hit the fan and inflation hit everyone hard.

I wonder if some people had to go back to work.

I wonder is some people will ever be able to retire!

I retired over a decade ago and am living comfortably off SS and a small pension. I still have untouched IRA's. The only way I was and am able to do that is the mortgage and car were paid off and credit card balances were zero. Zero debt going into retirement is too often overlooked as a key strategy. Once that is accomplished, adjusting your lifestyle to match your income becomes relatively easy.

I will be TOTALLY debt free before retiring. I can live EXTREMELY comfortably on less than $3,000 a month. I’ll be set for YEARS after retiring.

Well compare yourself to the average amount people have at age range of 55-64 (just choosing this bracket because it's the "time to start worrying hard" age) which is about $426,000. If you have this or more than this your actually doing good because this "average" retirement amount is skewed way upwards by rich people at the top end. Now the most telling is the median or "most common" amount for the same age range of 55-64. The median or most common amount of retirement is only around $90,000. I am currently above average, which since the average is so skewed, puts me well ahead of "most" in my bracket. I'm not going to be wealthy in retirement, but I should be able to get by comfortably as long as my lifestyle is the same when I get there.

I find that as I get older, my normal yearly COL "wants" tends to be lower. I don't do/buy/go expensive things/paces as often, and all my big ticket items are paid off. My "needs" COL has been going up because of inflation like everyone else's. I just hope my investments and savings gains can offset the inflation.

The simple answer is this: Save at least 15% of your gross pre-tax pay each year in long term retirement savings. Take full advantage of any employer matching, and invest in a well diversified portfolio. That's it. You will arrive at retirement with plenty of money for the lifestyle you are used to.

You should be debt free, including having your home paid off and with no car loans or other debt.

It is a really complex set of variables for each individual, along with taxes and all the associated government benefits and costs. It would be easy to throw a number out there as what a person would need for retirement, but by next year that number would be wrong due to inflation, tax changes, etc.

I will say that when I was out on disability for a back injury I was paying all my bills with what was about the same as my social security would have been. As long as a person has no debt they can live on a pretty small amount.

I’m going to simplify the math for you and spell out the assumptions.

Assumptions: the savings we’re talking about is in a tax-deferred savings that you’ll pay taxes on as you withdraw it. You’re not planning to work on leaving any money for anybody. Your savings will mostly be in stocks except the next 3 years worth will be in time targeted bond etfs so you don’t lose any principal.

Calculations: you can adjust the numbers up or down to get to your number; just follow the calculations.

Say you need $100,000 a year to fund your retirement. From that $100,000, you’ll pay your income taxes and all your expenses.

Let’s say, the only income stream you have is Social Security that will pay you $48,000 a year ($4,000 a month). That’s assuming you wait to retire until you can get your Social Security. If you want to retire before, then just add the SS amount for the number of years before it kicks in to the final number.

With Social Security counted, then you need your savings to supply the remaining $52,000 per year. If you’re depending on other income streams such as pensions, then reduce that amount from the $52,000.

Now, divide $52,000 by 5% to get you $1,040,000. This is the amount you need to save in order to retire.

Here are the puts and takes on that $1.04 million. The number is based on the projection that you can withdraw 5% every year from your savings and when you die, you’ll still have $1,040,000 in you account. Our assumption in the beginning is that you’ll spend it all by the time you die but this amount will cover the puts I’ll cover.

The 5% rule was originally from a study that said 4% withdrawal each year will leave you with the same amount when you die. But more recently, the same guy revisited his study and says you can even withdraw 6% at least. So, 5% is a safety net.

We said we assume that most of your savings will be invested in the stock market. But we know the stock market can go up and down. So, the $1.04 million projected to remain upon your death is to absorb any volatility. If the market hits a bad patch and is unable to recover before you die, then you simply leave less money.

We didn’t figure in inflation. The $1.04 million projected to be left behind at your death, then the $1.04 million will absorb the effects of inflation over time.

That’s it. If you need less than $100,000 a year in retirement, then reduce it and vice versa. If your Social Security is less than $4,000 a month then the remaining needed income stream will be more. If you have other pension plans, then you’ll reduce your needed income stream.

After you determine your needed income stream, divide that number by 5% and that’s the savings you need to have saved when you retire.

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Originally posted by erj_pilot:
I will be TOTALLY debt free before retiring. I can live EXTREMELY comfortably on less than $3,000 a month. I’ll be set for YEARS after retiring.

This is true. But there are so many variables.
Money in the bank is only part of the deal. There is SS, 401k, possible a pension, real estate, etc. Besides cash.
But if you have no debt, just expenses. Then a smaller cash reserve is plenty to live in retirement. No need for millions unless you plan to spend like crazy. Remember if you get to old age your spending will go down usually.
So if you retire at 65 and live till 90. Most likely the last ten years of your life you will not be a big spender.

Barring injury or ill health, I don't want to ever retire. If SS still exists when I turn 65 (I'm 52) and I don't get means tested out of it, I can often earn more in a day or two than SS would pay me in a month. I can't do it every day, but I can definitely do it in 1-3 days per week. I have retirement savings and Mrs. Lee is 10 yrs younger, so will be earning well past my slowing down years. House will be long paid off by then and we don't have any other debt. I view SS as manna from heaven, if I ever see a dime of it.

I’d say people overestimate how much they need. Most calculators assume you will live to 90 (good luck) and that you will be partying and going out all the time at 75. My financial guy did a scenario saying we needed to wait till age 67 but then showed us with 2 million in savings when we die. I explained that I want to die with $6 leftover.