Optimal Way to Calculate the Minimum You Can Retire With

So, how much do you need to save to retire? Can you retire with $1 million dollars, for instance? The answer is “yes”. However, you may also retire with more or less money.

What is more, it can be pretty complicated to retire with $10 million dollars. It all depends on the personal situation. Thus, for different people potential minimum varies. The only thing that is similar is that nobody wants to make their retirement years a struggle for existence barely being able to make ends meet.

The majority of financial advisors state similar number, which is also called the holy grail of the retirement analysis: the 4% sustainable withdrawal rate. So, you can withdraw this amount of money and still consider your portfolio to last over 30 years.

This is the easiest way to define how much you need to save for the desired retirement and how long your retirement money will last.

Surely, it’s not the only option and there are some contradictions between different people’s opinions about the sustainability of this withdrawal rate in the contemporary financial environment.

Retirement is like a long vacation in Las Vegas. The goal is to enjoy it to the fullest, but not so fully that you run out of money. Jonathan ClementsClick To Tweet

How Much Do I Need to Retire

Let’s say you are 65 now and you have $1 million. Then, you can expect your investment portfolio to provide you with $40,000 a year until the age of 95.

If you add that number to your Social Security income, you will get about $70,000 per year. This is the reality that you may get if you retire with $1 million. In case this outcome doesn’t seem sufficient for you to maintain the desired lifestyle, you need to think further.

You may have additional questions so far. What if I am 75? What if I’m receiving benefits and a government pension? What if I’m planning to die broke?

Your questions may be endless, but the point is that if you would like to have a better life than $40,000 a year after you retire, $1 million won’t be enough for that.

Thinking about Future Expenses

There are plenty of articles and books about the sequence of returns, longevity risks, debts and healthcare costs. But thinking about the amount of money you need for retirement is one of the questions that boils down to thinking about and projecting your future expenses for the whole life.

It’s essential to have a clear understanding of your costs and living expenses if you want to get a successful retirement. Agree that it’s better to be proactive and make any necessary adjustments to your current financial situation, rather than waiting for a financial crisis and doing nothing.

In other words, $1 million dollars is the minimum amount of money you need to have before you retire with having $40,000 a year. Some financial experts claim that lots of people don’t really plan for income in their retirement.

Failing to think about Social Security income properly may result in getting not the kind of retirement you were dreaming about. You should think about how everything you have can create income for you, about the power of leverage for your future.

So, if you do own certain things that can be later turned into retirement income, then having $1 million dollars may not sound risky at all.

Types of Retirees

There are several types of retirees. Depending on how they think they are ready to retire we can distinguish three main categories of such people:

• “Live it up and enjoy! You will definitely retire!”
• “The probability of retirement is good, but you shouldn’t go too much overboard.”
• “What if we need to redefine retirement for you?”

The first category of retirees is about people over 70 years old who have reasonable expenses, so most likely your $1 million goes to this category.

The second type is about people over 60 who tend to have a frugal lifestyle. Finally, the third type is for everybody else.

So, in order to have a decent retirement even having $1 million dollars, you need to focus on what you can control and what you can’t.

For instance, you can’t control inflation but you can control your variable costs. You can’t control when you die but you can control your health costs and try to stay healthy as long as possible.

P.S.: Learn how to repay the debt with your 401k.