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How Much Is Needed to Retire?

December 1, 2022
How Much Is Needed to Retire?

It's a family financial planning question many of us ask ourselves—how much money will I need to have saved up in order to retire? 

When it comes to saving for retirement, there is no magic number. There are multiple factors to consider when calculating how much you'll need to have saved. 

In this article, we'll take a look at the most important factors to help you determine your own answer to the question: how much is needed to retire?

Identify Your Retirement Needs

Rather than plucking a number out of the air, let’s break it down into some specifics that will help tally a retirement fund goal for you. 

Length of Retirement Years

The average retirement age in 2021 was 65 for men and 62 for women, a rise of three years for each number over the last 30 years.1 When you see references to the average person in terms of retirement plans, you can assume a mid-60s retirement age. 

So how long do you plan for? The standard expectation for planning purposes (including our calculations below) is 30 years spent in retirement. If you’re aiming for early retirement, you’ll need to index personal capital for that extra time. 

Basic Living Expenses

Many experts suggest planning a retirement savings goal of 80% of your pre-retirement income. This is based on eliminating work-related expenses and having completed major spending related to children. Will you be able to save on any of these? 

  • Dependent costs such as food, clothing, childcare, and education
  • Mortgage payments (if your home will be paid off before retirement)
  • Daily commutes, professional clothing, and work meals

You may also be able to keep retirement expenses down through: 

  • Senior discounts on utilities, memberships, groceries, and restaurant bills
  • Perks through some Medicare plans such as gym memberships
  • Lower insurance costs based on age, claim history, and vehicle usage
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Retirement Plans and Dreams

If you plan to sell everything and start living the RV life, spend your retirement savings traveling first-class to beach resorts, or buy a Montana hobby ranch, you’ll need to analyze the costs and incorporate them into your retirement income needs. 

Your budget could move significantly in either direction depending on your retirement lifestyle, but three popular ways to opt for a lower-cost lifestyle are: 

  • Moving to a city with a low cost of living for older adults like Prescott, AZ or Hot Springs, AK2
  • Downsizing from a family home to an apartment or smaller house
  • Retiring abroad to a $1,000-per-month destination such as Cyprus, Panama, or Belize3

How Much Money Do You Need to Retire Comfortably?

Once you figure out a target retirement year and lifestyle, you’re ready to come up with a number. Two popular retirement saving calculation methods are: 

Salary-Based Total

Using Fidelity’s retirement planning calculation, if you retire at age 65, you’ll need to save:4

  • 9x your annual salary for a reduced lifestyle (spend about 15% less than now)
  • 12x your annual salary for the same lifestyle (keep your spending levels as is)
  • 14x your annual salary for an enhanced lifestyle (spend about 15% more than now)

If you start planning early, a roadmap to getting to the most common personal finance goal (spending less during retirement) looks like this: 

  • Age 30, save 1x your annual salary 
  • Age 35, save 2x your annual salary 
  • Age 40, save 3x your annual salary 
  • Age 45, save 4x your annual salary 
  • Age 50, save 6x your annual salary 
  • Age 55, save 7x your annual salary 
  • Age 60, save 8x your annual salary 
  • Age 65, save 9x your annual salary 

The 4% Rule: Calculate Based on Desired Income

Another option is to employ the 4% rule. Rather than basing your retirement calculations on your current earnings, this method skips ahead to start at how much annual income you’d like to generate during retirement. Once you do that, calculate a total savings goal by dividing that number by 4%.

For instance, if you want to receive $60,000 in passive income per year, you’ll need to save $1.5 million (60,000 / 0.04 = 1,500,000). 

Fund Retirement Living with Your Home Equity

Inflation is soaring and stock markets are down—if you’re planning for a comfortable retirement, you need to know how to leverage all of your assets. Home equity is a big-dollar part of your portfolio, and you don’t have to take on equity-based debt or plan to move out to access it. 

With Truehold's Sale-Leaseback option, you can close a sale on your property and cash out all of your home equity without leaving it. You’ll free up the equity you’ve built over years, plus reduce your monthly housing cost to rent, instead of a mortgage payment, property tax, homeowners liability insurance, and all repairs and maintenance. 

If you’re resistant to selling your home because you don’t want to move, a sale-leaseback may be an excellent way to fund retirement living while staying in your current home. Give us a call today and one of our advisors will reach out to review the process and to see if Truehold's Sale-Leaseback option fits your retirement goal.

Sources: 

1. Forbes Advisor. The Average Age Of Retirement In The U.S. https://www.forbes.com/advisor/retirement/average-retirement-age/

2. SeniorLiving.org. Best Places to Retire for Seniors. https://www.seniorliving.org/retirement/best-places/

3. U.S. News. The Cheapest Places to Retire Abroad on $1,000 Per Month. https://money.usnews.com/money/retirement/baby-boomers/slideshows/the-cheapest-places-to-retire-abroad-on-1-000-per-month?slide=13

4. Fidelity Investments. How much do I need to retire? https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire

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