November 06, 2017 in: money needed to retire,
As retirement approaches, many people get scared about their future living. At an average, most retirees are able to replace only 60% of their income, whereas the required rate is 80%. If you are one of those persons who started thinking about their retirement fund at an early age, then you should have amassed a lot by now. However, how do you know it is enough to keep you afloat?
Here’s a quick tip: In order to know how much you should have in your bank account by the time you retire, multiply your current salary by 12. This is a ballpark figure and you shouldn’t be too comfortable with it because, depending on your expenses and the economy, things can change and they will. However, maintaining this amount in the account is quite hard and therefore, you should start saving at the age of 35. Following is a simple way to calculate your savings and determine how much more money you will need by the time you reach the age 90.
Calculate Your Spending
Calculating what you have spent so far can be quite intimidating. You don’t need any fancy apps for that except your bank statement. Sum up all the amounts and divide it by the number of withdrawals you have made this year so far. This will give you an average amount of your spending. Let’s say that when you retire, you will be spending $60,000 (adjusted for inflation) every year.
Calculate Existing Income Source
After retirement, your existing income source might be your pension and social security. Discarding any other income source which you might be tapping into, let’s focus on these two. The amount you receive from these two is $10,000. As you can see, you are still $50,000 short. It’s time to bring out your calculator now.
Let’s do the Math
You now know that you need to come up with $50,000 to match your retirement fund estimate. Say, you are earning 5% on your investments. To make up for that missing 50k, divide $50,000 by 5% and you get $1,000,000. This means that by the time you retire, this amount should be in your account.
How Much Your Current Savings Will Help You in the Future?
Let’s assume that so far, you have saved $250,000. In the next 20 years, you will be 90 and you want to reach your goal of $1,000,000 before that. There’s a possibility that you might not be able to work that hard to achieve this goal. This is where you need a professional calculator to see where and what budget cuts you need to make so that you can reach that amount.
Retirement calculators do the calculation based on your age and annual income. Of course, if you are getting benefit from Uncle Sam, then all the better. Try this calculation method and you will find an estimated amount, based on which you can start saving.