How Much Money Do You Need to Retire at 50?
Several Factors Help Determine How Much Money You'll Need
Are you approaching 50 and have a retirement nest egg saved? Do you want to know if you have enough to retire? Are you trying to calculat how much money you'll need to retire?
Well, there are several factors that will change the amount of money you'll need to retire at 50. Let's cover them one by one.
Annual income during retirement. Of course, your lifestyle will change when you retire. For some that means you will spend less and for other, you may spend more. Look at how much you currently spend each year and try to come up with a range that you'll need during retirement. If you think you'll spend a lot the first 10 years of retirement and then less as you slow down, then plan accordingly. In calculating how much money you need to retire, the higher the annual income needed, the more you'll need to save.
Remaining Life Expectancy. The longer you live, the more money you will need during retirement. If you are going to live one year and you will need $100,000 that year, then you would need to save $100,000. However, the longer you plan to live the more you will need to save in order to retire. This is a difficult number to arrive at. You can look at government statistics that will give you a life expectancy, however, you should plan on living longer than average, just in case. We recommend planning on living until 100. That way you'll have a safety cushion built in to your retirement estimate.
Investment Rate of Return. How much your investment savings grow also determines how much money you'll need to retire. If you invest in ultra-safe money markets and CDs, you'll need a lot more money to retire than if you invest in a balanced portfolio of stocks, bonds, commodities and cash. After all, if you are planning for 50 years of retirement, you have a long-term investment horizon and should take on a fair and balanced amount of risk. The higher your investment return during retirement, the less money you'll have to save to retire at 50.
Inflation. Inflation is always eating into your pocket book. As an example, just look at how much more a gallon of milk costs today versus 10 years ago. Everything goes up over time. Gas, food, healthcare, living expenses. The national inflation rate over the years has averaged 2-4%, but that doesn't mean you should expect the same. For your retirement model, you may estimate inflation higher than average if you expect health care costs to continue rising faster than the average inflation rate. The higher inflation is expected to be during retirement, the more money you'll need to save in order to retire at 50.
Retirement Model. Download our free retirement planning calculator in either Excel or OpenOffice format.
See Also: Other Retirement Advice