Set your retirement goal! How much money do you need to have saved in order to retire?
Get the exact answer with the help of two Websites by following these simple steps...
According to one study, only 37% of American workers have even tried to estimate how much money they'll need to retire. Not even something like "if I need $20,000 a year for 20 years, I'll need $400,000."
Here's how you do it
Did you ever hear anyone say "if I won the lottery I'd just put the money in the bank and live off the interest"? That's basically what you're going to do -- your goal is to accumulate enough capital so that by the time you retire, the interest earned from that capital will replace the income you need to maintain your pre-retirement lifestyle.
So first figure out how much your annual income you'll need post-retirement, subtract from that your estimated Social Security and other pension benefits, and that's how much income your investments will need to generate. You'll need to calculate how much capital it will take to generate that much income, and I'll show you exactly how to do that.
Learn by example
Let's take the case of Emily Employee. Emily is 34 years old and earns $32,000 a year. Here's how Emily will calculate the amount of money she'll need to have saved for retirement:
Step 1: Determine how much of your current income you'll need after retirement.
Most people don't need as much income after they retire to maintain the same lifestyle. They no longer have commuting costs, aren't saving for retirement, usually are in a lower tax bracket, etc. The Department of Labor says most people spend about 75% of their pre-retirement income after they retire. The percent of post-retirement income you need is called your replacement ratio. Most experts say you should set your replacement ratio at 80% to 100% of your pre-retirement income.
Emily believes she'll need about 90% of her pre-retirement income after she retires. 90% of $32,000 is $28,800. This is her annual income goal.
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