When people think about retirement, they usually think of old age. It just accepted by most people that they will be working most of their adult lives, and then in their 60’s (or later), they can finally take it easy.
It does not need to be that way for you.
The key realization is that retirement is that it is not an age but a dollar amount. The dollar amount, of course, will vary based on your lifestyle and obligations (i.e. kids).
Let’s figure your number out now based on the assumption that you would like to maintain as good a standard of living in retirement, as you currently have.
To do that, you will require a nest egg that can provide you with enough passive, non-employment income per year to replace about 75% of your current income.
75% only? Yes, for retirement, you won’t need to replace 100% of your current income because you’ll no longer need to save for retirement once you’re in retirement. In retirement, you are no longer in the accumulation phase, you are in the spending phase. Also income from a pension, social security, and retirement account withdrawls (i.e. 401(k) or IRA’s) are not subject to federal payroll taxes which can eat up nearly 8% of your earnings.
In addition to any passive income sources, financial advisors often advise that it is “safe” to withdraw 4% per year from your investment accounts in retirement. By “safe,” it is meant that if you stick to this rule, you are unlikely to run out of money in retirement.
This is famously referred to now as the 4% rule.
Once you’ve figured out how much you need for retirement, you can estimate how quickly you’ll reach it based on your current income and investments.
The more you focus on making money, saving money, and investing money, the sooner you’ll get there. So you are on the right website! Keep reading articles here and take control of your financial destiny.