It probably comes as no surprise that the question asked the most about retirement is simply, “How much money do I need to retire?” That and nine other questions are a good indicator of what is on most American’s minds, when it comes to retirement, says Next Avenue in the article “The No. 1 Question Americans Ask About Retirement.” The other nine questions:
2. How can I retire early?
3. When can I retire?
4. What is the right retirement age?
5. How much to save for retirement?
6. How to save for retirement
7. How to retire at 50
8. How to retire?
9. What is full retirement age for Social Security?
10. Where to retire?
Let’s look at the first question. It’s not an easy one to answer, because how much you need to retire depends on many different factors. For years, the magic number was $1 million. Not that everyone reached that goal, but that was the goal. But as we are living longer due to advances in medical care, and the higher cost of medical care and higher living costs in general, that $1 million may not last as long as it used to.
One personal finance guru now says that $5 million is the magic number. Others think that number is far too high, but that $1 million may not be enough.
Another formula is that you should have six times your starting salary saved at age 50, and that when you reach 67, you should have ten times your starting salary saved.
The real answer: it depends. Where you live, how you spend, market returns, how long you live and other factors all have to be considered. Some of these you can control, some you cannot. However, regardless of what rule you follow for retirement, a few things are agreed upon by all:
- Start saving early and make regular contributions to retirement accounts.
- Set up automatic enrollment and auto-escalation of your retirement plan.
- Cut out unnecessary expenses.
- Bump up retirement contributions every time you get a raise.
If you want to retire early, you’ll need to supersize some of those rules, like dramatically cutting out all but the essentials when it comes to spending and ramp up savings.
All this interest in “how much” comes at a time when a staggering number of Americans are completely unprepared for retirement. About 60% of working age people don’t have any retirement assets from either an employer-sponsored 401(k) or similar plan, an IRA, or a defined benefit plan.
Reference: Next Avenue (May 7, 2019) “The No. 1 Question Americans Ask About Retirement.”