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Disclaimer: I am not a certified financial professional.  All articles and posts are opinions expressed by me, a contributor to the Common Cents Finance platform.  The information provided is not a research report or financial advice.  It should not be used as the basis to buy or sell a security, nor is it an offer to buy or sell a security.  This article generates revenue through affiliate commission at no cost to you.

For many people looking to retire, the same question comes about: how much do I need? This is the age-old question for many planning for their post-work life. Knowing how much is needed for a comfy retirement can be priceless information. However, the answer is unfortunately not that simple.

The amount required varies from person to person, and that alone can make figuring out this figure that much more difficult. Everyone is in their own respective financial situation, which results in vast differences between individuals. Consequently, it is difficult to give a uniform answer to everyone looking to retire. However, there a number of individuals who attempt to do just that.

Expert Recommendations

Financial experts have attempted to provide some clarity on the situation. As a result, there are a number of goals and recommendations out suggested by these individuals. Ironically enough, because there are so many different suggestions, they actually might not be provided enough clarity on the matter.

To clear things up, let’s go over a few of these recommendations to see if any of them are worth following.

Is $1 Million Enough?

There are some who believe that you need $1 million saved to have a safe retirement. However, I don’t know if having some arbitrary number is a suitable goal for everyone.

Like I stated earlier, not everyone has the same living expenses. One reason for this could be the person’s location. For example, someone who resides in the greater New York area will have greater living expenses than someone in Oklahoma. New York is the fourth most expensive state to reside, while Oklahoma is the third lowest.

So, where you live can also play a large factor in your retirement savings. There are also those who just have more expensive lifestyles than others. These people may have habits or hobbies in retirement that are rather costly, which would require greater retirement savings.

Thus, although having $1 million in retirement savings would work for most people, it might not be enough for everyone. Using a blanket recommendation for all looking to retire might be ill-advised. As a result, maybe it is worthwhile looking at other recommendations.

Would 80% of Your Income Work?

Others believe that you can safely retire if you can have a yearly retirement income that equates to 80% of your pre-retirement salary. In other words, if you had a salary of $100,000 prior to retiring, you would need $80,000 annually in retirement.

This could serve as a very good target for retirement. Unlike the $1 million figure, this 80% baseline can differ between individuals. It is not just a simple blanket statement for all retirees, who have different circumstances surrounding their finances.

So, in my opinion, this a better objective for your retirement than the arbitrary $1 million figure.

How About 12x Your Income?

Another recommendation is saving 12x your pre-retirement salary. Like with the 80% of your income suggestion, this can adapt from person to person. It is not a blanket figure like the $1 million suggestion.

Due to this alone, this could be a viable goal for your retirement. However, this does not take into account whether or not your cost of living changed in retirement.

What’s Right for You?

All these goals are great and all, but which of these best suits you for your retirement? Well, that depends. There are a number of factors that can play in retirement planning. If you do not take these into account, then you are most likely not going to prepared to retire on time. We are going to go over three main areas of importance when it comes to your planning, so you can get a better understanding.

Cost of Living

Like previously mentioned, your costs of retirement living play a large factor in how much you need for your savings. How much do you plan to spend in retirement? If you plan to have a luxurious retirement, where you take expensive vacations and make pricey purchases, you need to up your savings tremendously.

How can you do this? You can look to save as early as possible and as much as you can afford. However, I am not sure if this is the ideal approach. There are a number of measures you could take to have a very comfortable retirement, without having to sacrifice too much in the present.

For one, you could move to a more affordable location. There is a reason why so many retirees move to Florida. Florida is one of the only states in the United States that charges no income tax. As a result, many individuals in retirement move there for tax relief (in addition to the warm weather, of course).

You could also consider moving to a state with a lower cost of living overall. This state could have living costs, such as rent and housing payments, which would lead to fewer expenses. This would result in you having more retirement income at your disposal. This means that your savings can go farther. You can do more with what you have.

Where you live can really help or hurt you in retirement. So, having a plan about where you will reside in retirement can be very beneficial.

Reliability of Income

Another factor is how reliable your investments will be in the future. Will you be able to get consistent returns on your investment? The answer to the question can determine whether or not you can retire comfortably.

Consistency in returns is a very important aspect of a safe retirement. This can be achieved through stocks, real estate, or some form of business. No matter how you plan to receive your retirement income, you need to ensure that it is reliable. Make sure that you can rely upon this income source and that it is unlikely to fluctuate or stop abruptly.

One of the greatest rules of thumb to follow is the 4% rule.  In retirement, it is suggested that you are able to withdraw 4% of your retirement savings yearly for living expenses.  In order to do so, you would have to have a yearly return greater than 4%.

This can be accomplished through smart investing. On average, the stock market has an average return of roughly 10%. Withdrawing your capital gains and dividends from stocks in a tax-advantaged retirement account can definitely accomplish this goal. To learn more about dividends and stocks in general, click here to read A Beginner’s Guide to the Stock Market.

There are a few accounts, such as an IRA or a 401k, that you can utilize to do this. These two accounts provide tremendous benefits, such as tax relief and even matched contributions. To open an IRA today, you can use WeBull or Betterment, in addition to various other brokerage platforms. Currently, Robinhood does not offer IRAs, but that will most likely change soon. If you want to learn more, click here to read my article on The 3 Best Ways to Save for Retirement.

Your Retirement Age

Your retirement age is probably the biggest factor in determining how much you need to save to retire. Why? Well, when you want to retire determines how much time you have to invest. The more time you have to invest, the more time you have to allow your investments to grow with compound interest. A shorter time window means you would not have this luxury.

In other words, if you want to retire are the typical age of about 60, then you do not have to be as aggressive with your retirement savings. However, if you wanted to retire much earlier, like in your 40s or 50s, you would have to be very aggressive to be able to retire.

Here’s an example. Let’s say you are 20 years old and plan to retire at 60. To plan for your retirement, you start putting away $5 per month over the next 40 years. With a 10% on the stock market, you would have a total of more than $29,000 in your account. The crazy aspect is that you only contributed $2,400. The other $26,500 is the sole result of compound interest, which has a greater effect over longer periods of time.

To better demonstrate that, let’s use a comparison. Let’s say you are 20 years old and want to retire at 40, not 60. To better prepare, you save much more. Instead of $5 per month, you save $25 per month, which is five times greater than the other scenario. Over the span of twenty years, your total return would be shy of $19,000. In this case, your contributions equaled $6,000, yet your return was much smaller. This is due to compound interest, which allows you to really increase your returns tremendously. As a result, attempting to retire earlier can be much more difficult, especially if you do not plan accordingly.

Regardless, I still think it can definitely be achievable; you would just have to make some sacrifices. There is a group of individuals who look to retire as early as possible referred to as the FIRE movement. FIRE stands for “Financially Independent Retired Early.” These individuals take tremendous strides to accomplish their goal of early retirement. And, I am talking TREMENDOUS strides.

I have seen people go as far as live in their car to avoid housing expenses. You definitely do not have to go that far, but you need to understand that very early retirement is very difficult to accomplish.

To avoid living in your car, you would have to have a high income prior to your retirement. Of this income, most of it would have to be invested in a non-retirement account, since IRAs and 401ks do not allow you to withdraw before 59½.

In this case, you could use Robinhood to open a non-retirement account. If you choose this method, you will receive one free stock when you create an account. To open a Robinhood account and collect that free stock, click here.

By the time you retire, you would need to have amassed a rather large sum of money, possibly in the millions, which could be done by achieving one of the benchmark goals previously mentioned.

Regardless, you need to understand that you will most definitely require a large sum to retire comfortably. This figure can be anywhere greater than $1 million. This may seem overwhelming to some of you, but it is not that difficult to accomplish if you start as early as possible. So, my suggestion would be to start saving for retirement right now.

So, How Much Do I Really Need to Retire?

All of the previously mentioned factors play a large role in how much you need for retirement. How much you personally would need is not the same as how much someone else would need.

Retirement savings vary on a case-to-case basis, as it really depends on your lifestyle.  I highly recommend utilizing retirement calculators, such as this one from NerdWallet. This would give you a personally modified where you are on your track to retirement. In this, you could adjust your current savings and your estimated expenses when you retire.

However, these calculators might not be entirely accurate. Further, your plans for your own retirement may change as you get closer to actually finishing your career.

So, what do I recommend? Save as much as you possibly can. The more you have, the more secure your retirement can be. In all honesty, you could adjust your lifestyle to live within the means of your retirement income. But, there is no reason to sacrifice at an older age, especially when you may have worked 9-to-5 for over 40 years.

I think the best approach is to have a nest egg large enough that you can live off the interest that it provides. That income could be 80% of your pre-retirement salary or 4% of your principal. Regardless, your interest should be able to cover your expenses, and you should never touch the principal.

Additionally, I would look to own a property outright to avoid additional expenses like rent or mortgage payments. There could be a number of ways to do this, such as downsizing to a smaller home and purchasing the property without debt. No matter how you do it, it definitely ensure a more secure retirement.

In terms of how much in total you need, that may vary since everyone has different salaries. Although it may be some arbitrary figure, I would aim to save upwards of $1 million for your retirement, if you plan on remaining in a commercialized area, like the greater New York City region. Of course, if you move to a more affordable location, such as Florida or another country with tax relief, then this figure could be much lower. Again, it all depends on your living conditions in your retirement and how early you wish to retire. Just remember that your principal needs to be large enough that you could live off the interest alone.

If you are in your 20s reading this right now, open yourself a Roth IRA as soon as possible. Unlike a 401k, you can do this on your own. This would make reduce any burden in retirement tremendously. In fact, a Roth IRA would allow you to have a very comfortable retirement. To learn more about IRAs, you can read here. The earlier you start, the greater your returns will be. So, you should start today. And then, once you are offered a 401k by an employer, open one immediately and take full advantage of its benefits also.

If you are not convinced enough to start investing yet, here are Five Reasons to Start Investing Now!

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Post Author: Anthony Crincoli

Anthony is the Founder and Lead Content Creator for Common Cents Finance. Away from the platform, Anthony is a CPA Candidate and an auditor for a Big Four public accounting firm. He has a passion for personal finance and looks to promote financial literacy whenever and however he can.

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