The exact answer to the question of how much money one needs to retire is different for every individual, because it depends on their respective means and requirements. However, there definitely are some general rules and facts that can help you understand more about your requirements, and about your means. In the following sections, we will discuss some factors that will help you find how much money you need to retire?
Retirement Fund Needed for 20 years after Retirement
According to a study by BTN Research, a private money management firm, you require a nest-egg of about $196,000 for every $1,000 that you want to receive every month for a period of 20 years. Therefore, if you want a monthly income of $3,000 per month after retirement, you need a nest-egg of about three times $196,000, which is about $588,000. If you need more to require, you will need a larger retirement fund. These numbers assume that the inflation rate would be at a constant 3%, and your portfolio can expect annual returns of about 5%. It is, of course, likely that any or both of these assumptions will prove in the long run, but they do prove informative to us in this discussion.
It should be noted that one of the assumptions is that your retirement fund will become zero at the end of that 20 year period. Therefore, it is useful for the average American, but not for everyone. Many of us will live more than 20 years after our retirement, and will therefore need a bigger retirement fund to serve us for that period.
Accumulating your Retirement Fund
Doing the math about your retirement fund is much easier than actually accumulating that sum. A number of factors can combine to stop us from reaching our ideal target. Let us find out some major factors that can contribute to reduce your retirement fund.
- Bad Spending Habits
Overspending is perhaps the one factor that stops the maximum number of people from reaching their retirement goals. Every dollar you earn today can either go into your retirement fund, or can help you buy something that you won't even remember one year from now. Unfortunately, many Americans make the easy choice, and fail to save for their future. Learn from them, and do not fall into the over-consumption trap.
- Fear or Contentment
Both of these emotions are opposite ends of the spectrum that can stop us from reaching our retirement potential. Fear can make us make some unwise investment choices, whereas contentment about our status can stop us from pushing ourselves to reach our true financial position in life.
Ignorance about our options can stop us from making the smarter choices when it comes to savings, and stop us from reaching our retirement goals. The only solution to this problem is to learn as much as you can about investing, and use the help of a financial planner to create a retirement plan.
We find that we do need a lot to retire for 20 years or more, but it is perfectly possible to reach the retirement goals if you do not fall into the trap of ignorance, fear or habits of overspending. Retirement planning is more than just saving a portion about your income every month – it also requires you to know more about the topic so that you do not make any mistakes with your retirement planning.
Also read: How Much Money Do I Need to Invest to Make $1,000 a Month?
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.