We cannot run from retirement and, provided we are live long enough, we’ll get there. This is why retirement planning is mandatory.
One of the biggest questions any prospective retiree is asking is ‘how much money do I need to retire?‘
And, just as we are all very different and so are our needs, the answer to this question is difficult to find.
There are people who claim 1 million dollars is the sweet spot, others say 80% of your current income and many other calculations. The problem is that not all have the same needs, some people are living more frugally, so might need less money, others might be sicker, which means high medical bills and so on.
How to calculate what you need to retire
While there’s no certain way to perfectly calculate your retirement fund needs, there are still ways to predict it.
How much time you do think you’ll be retired?
You could live 30 years or more in retirement or die after 5. It depends on so many factors, that, again, it’s close to impossible to predict.
Still, based on your family history and personal health, you could make an assumption.
If your parents and grandparents lived a long retirement and you are in excellent health, chances are you’ll live longer, so it makes sense to plan for a longer retirement.
You could also retire earlier and this would prolong your retirement as well.
It’s better to plan for a longer retirement, since, outliving your retirement funds is clearly unpleasant. Stick to a bigger number and start your calculations from there.
What’s your retirement salary?
Better said: how much do you think you’ll need on a monthly basis?
Retirement living should be cheaper than your current costs of living. Your kids won’t need your help anymore, you’ll most likely be debt free and probably downsizing.
On the other hand, as you age, medical bills will increase, because of a declining health.
Anyway, base your calculations on what you currently live off each month.
Say you need $3000/month for your living expenses and health insurance, taxes etc. If you guesstimate you’ll live 30 years in retirement, this means $1,080,000. Hey, that’s the million we talked about earlier 😉
Specialists claim you should calculate about 80-85% of your current income, to be able to have a comfortable retirement.
Social Security benefits
In most countries social security benefits are declining, because people tend to have less children than the previous generations and, while we get older, fewer people are here to pay for our pensions.
Previous generations could live off social security benefits entirely. It’s the case for my grandparents for instance, who never had to worry about saving anything for pension. Their taxes were enough for the pension plan and they could live off this.
Our generation won’t benefit from social security too much, this is why it’s important to rely on other income streams for our retirement.
How much do I need to retire?
In my case the calculations are even more difficult, as we are immigrating in 3 months. If we stayed in our home country, our pension fund could entirely be funded with rent income from our 2 city apartments, some bullion gold and a private pension plan.
Since we are moving to the US, we’ll need to start saving for a retirement fund there, provided we’ll stay during our golden years. If not, the retirement funds we’d save for in the US, plus what we saved in Romania, should allow us to live OK wherever we’ll remain.
What about you? Are you doing your retirement planning now? How much money do you need to retire?
