How Much Do You Really Need To Retire?


“Am I going to run out of money in retirement?”

If you have already started putting money away for your retirement, you have probably asked yourself this question at some point. The truth is that nobody has a definitive answer, especially for your unique scenario. There are so many factors that play into how much you will need when the time comes. That’s why it’s so important to start planning and saving now.

How do you know how much you need to save?

Many experts suggest using the four percent rule to find out how much you will need in retirement. The four percent rule originated after a study done by William Bengen in 1994. After analyzing stock and bond returns from 1926 to 1976, Bengen determined that a 4% annual withdrawal would make any retirement portolio last at least 33 years. This means that if you plan to withdraw 4% each year in retirement, then you can work backwards to see how much you need to have saved before you retire.

So where do you start?

First, you need to factor in your life expectancy. Nobody can know exactly how long they are going to live, which is one of the factors that makes it difficult to know how much to save. Still, you can find tools available online that will help you calculate an estimate of your life expectancy. This doesn’t take into account unforeseen medical issues, lifestyle choices, or several other factors that may impact your lifespan. The idea of this is to get just a general number of how many years you will need to plan for.

Once you have an idea of how long you want to plan for, then you will want to consider how much money you will need annually. Again, there’s no way to know this for sure, but a great place to start is by considering your current yearly expenses. Whatever annual amount you decide, you will want to work backwards using the four percent rule and your life expectancy as the length of time.

After running these numbers, you will arrive at your total ideal savings, which should be your goal to save for your retirement. It should be said that the four percent rule may not be the best plan for everybody. There are other methods that may be recommended in some cases, which is why you may want to talk to a professional or further research the options available to you. Some people think that they should just try to save as much as possible and don’t care to make a plan, while others are worried about saving too much and having too much left in savings when they die. Without first setting a goal, you won’t know when or if you need to start putting more into your retirement funds, which will make your retirement planning more difficult as you get closer to retiring.

Whichever fears or thoughts you might have around retirement, it’s still important to start saving for it as soon as you can. The best way to get started is to stop asking yourself “Am I going to run out of money in retirement?” and find a good financial professional. Reach out to the knowledgeable and experienced professionals at Dayton and Sydney Wealth Strategies Group today to help you determine what your goals are and to help create a plan to reach those goals.

This article is for informational purposes only. Please be advised that this article is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. PPG-139592 (9/19)(Exp. 9/20)

About Dayton & Sydney

Dayton & Sydney Wealth Strategies Group is a financial advisory company built on a legacy of hard work and customer service. As an elite producer group of AXA Advisors, we use a solid, innovative and long-term approach to help you accomplish your biggest dreams.

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