How Much Money Do You Need to Retire?

Investment Management and Financial Planning

How much money will you need to retire? Probably more than you think! Extended life spans, reduced employer
benefits, lower market returns and increasing costs of living have forced us into a position of needing to save more.
Unfortunately, most Americans are doing a poor job of securing their future. The Employee Benefits Research
Institute reports that if current trends continue, there will be an annual shortfall of at least $45 billion by 2030 between
the amount retired Americans need to cover basic expenses and what they have.

Two generations ago, pensions and social security ensured a secure retirement for our grandparents. Today, the
virtual extinction of pension plans has shifted the burden of retirement savings away from corporations and onto the
employees. Our retirement depends largely not only on our own ability to save and invest wisely. But, it also on our
ability to plan.

Failing to plan means planning to fail. According to the U.S. Census Bureau, 50% of workers in this country have no
retirement savings at all. The rest have very little. Of workers age fifty-five to sixty-four, 75% have household
retirement savings of less than $56,000. Most of these people will be forced to extend their work years or accept
living in poverty. But, how can this be avoided?

Nobody said it would be cheap to retire. Most people really have no idea how expensive it will be. Research
indicates that retirees can best preserve their assets if their annual withdrawal rate is 6% or less (check out the
article here). Having said that, the following table offers some quick estimates of how much you might need to
accumulate before you can retire.

Planning for retirement is not something that you do shortly before you stop working. Retirement encompasses a
series of planned stages and decisions that must be made throughout your working years. The earlier you start the
better off you’ll be and the key is to save, save, save!

For example, if your goal is to attain $1 million by the time you retire (in today’s dollars), this would afford you an
income stream of $60,000 per year from your portfolio ($1,000,000 X .06%). The earlier you start, the less you’ll have
to save on a monthly basis as illustrated in the following table.

**Assumes an 8% Rate of Return and monthly compounding effect.

As you can see from the table, when calculating how much you need to retire, there are many factors that come into
play, including:

•        Your current age
•        Intended retirement age
•        Lifespan
•        Current earnings
•        Income sources during retirement
•        Amount of current retirement savings
•        Cash outflows during retirement
•        Portfolio risk/return

How much will you need to retire? For starters, studies indicate that retirees will need to replace between 80 and 90
percent of their pre-retirement income in order to maintain their current standard of living and their savings will have
to keep pace with inflation.

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How Much Money Do You Need to Retire?
by Cathy Pareto, MBA, CFP®, AIF®

Back to Knowledge Center

Annual Retirement Income Need	Total Nest Egg Required (Estimate)
$ 50,000	$ 833,333
$100,000	$ 1,666,667
$175,000	$ 2,916,667
$250,000	$ 4,166,667

# Years Left Until Retirement	Monthly Savings Requirement to Attain $1 million goal
35	$ 435.94
25	$ 1,051.50
20	$ 1,697.73
15	$ 2,889.85
10	$ 5,466.09

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