Wealth & Lifestyle Identify What You Need So You Can Retire In Style Posted by: Team Tony
Much like stepping on the scale after the holidays, the amount of money you need to comfortably retire is the number many Americans don’t want to know for sure. In fact, half of Americans haven’t even tried to calculate how much money they’ll need for retirement. But just like those extra pounds, ignoring the problem won’t make it go away. You can’t manage your health if you can’t measure it. And the same goes for your finances. You can’t achieve your financial dreams if you don’t know exactly how much it will cost to get there.
Time to get your head out of the sand and crack some simple numbers to figure out where you are and where you need to be. Remember: anticipation is the ultimate power. losers react; Executives calculate.
Start thinking about your retirement provision now
Not planning for retirement and just hoping Social Security will carry you through retirement is a recipe for disaster. Social Security was never intended as a substitute for retirement, especially given the longer retirement periods that we can expect with longer life expectancies. 50 years ago the average retirement age was 12 years. Today it is more than 20 years. Additionally, according to the Center for Retirement Research, 49% of American households are “at risk” because they will not have enough money in retirement to sustain their standard of living.
Know the answer to “How much do I have to retire?” is the first step in planning your financial future. The sooner you anticipate your future needs, the sooner you can set and track goals that will get you there.
How much do I need for the pension?
There are several ways to think about how much you need for retirement. Most people who ask, “How much do I need to save for retirement?” focus on the amount they would need to maintain the same lifestyle as they are now for the rest of their lives without having to work. You can also work towards the ultimate retirement dream: achieving complete financial freedom to do whatever you want without fear of running out of money. This could mean spending your golden years traveling or buying a home in the mountains so you can relax with loved ones.
While there’s no fixed “how much do I need to comfortably retire” calculator, there is a reliable formula you can use.
1. Calculate how much money you need to sustain your current lifestyle
This number is not what you earn, but what you spend on a normal basis. If you spend more than you make, use this number – but you need to figure out how to reverse this practice! For example, if you make $80,000 a year but live on $70,000, your number would be $70,000. If you don’t know what you’re spending, now is the time to track your budget. This can also help you identify where to save so you can save more for retirement.
2. Multiply your number by 20
The next step of the retirement calculator is to multiply that number by twenty. This calculation gives you a rough idea of how much you will need to sustain your lifestyle until retirement.
3. Be conservative with your numbers, not overly optimistic
Many financial planners will tell you to multiply your annual income by 10 or even 15. But today, with returns on safe haven assets so low, and with most people looking for financial security in uncertain times, it might be wiser to use 5% as a more conservative assumption. Ten times your income assumes a 10% return. Twenty times your income assumes a 5% return.
4. Start creating your plan to reach your target number
Think about how to get the best returns in the time frame you have before you decide to retire. Need help weighing your options? Think about your asset allocation and special retirement accounts, and these five ways to reach your financial goals faster.
How much do I have to retire in a higher income bracket?
If you’re looking to travel the world, buy a boat, or update your retirement home, you need to figure out what that type of lifestyle would cost annually and use the same process above to calculate your savings. Remember that higher income can put you in a higher tax bracket, and you should always do research on how to maximize your tax benefits in retirement.
The number that comes to mind may be daunting – but don’t be afraid to dream big. With the right mindset and relentless focus, you can go beyond “How much do I need for retirement?” and start asking, “How much do I want for retirement?”
Create the right mindset
If you’re in the wrong mindset, you’ll never effectively answer the question, “How much do I need to save for retirement?” Why? Because a scarcity mentality means you’ll never attract the wealth you really need to create a lucrative retirement plan. By developing an abundance mindset, you will be grateful for every opportunity that comes your way and understand that obstacles are opportunities for growth.
If you focus on intangibles, you might find that the question, “How much do I need for retirement?” isn’t really the question at all. It might be more about addressing limiting beliefs about money and success so you can focus on creating a fulfilling career. Where focus goes, energy flows, as Tony says. When you focus on doing what you love, you’ll not only master the science of achievement — and financial success — you’ll master the art of fulfillment as well.
build money machine
So how much do you need for retirement? The key is to accumulate enough wealth to fund as many years of retirement as possible. One thing is for sure, you MUST build a money making machine and harness the power of compound interest to create an income stream for the rest of your life. In other words, you need to automate your savings in a tax-efficient manner and employ an investment strategy that allows you to make profits at any time of the year. A “how much do I need to retire comfortably” calculator becomes less important when you have the right strategy for building future wealth.
Increase your savings to a point where the interest on your investments is generating enough income to support your lifestyle without having to work. Eventually, you’ll reach a “tipping point” where your savings reach critical mass. That means you don’t have to work anymore – unless you choose to fulfill yourself – because the interest and growth your account generates will give you the income you need to live on. This is the peak we are heading towards and where a retirement savings calculator comes in handy.
Your investing game consists of two phases: the accumulation phase, where you pocket money for growth, and the deaccumulation, the period where you withdraw income. The journey up the mountain will represent your accumulation phase with the goal of reaching peak or critical mass. The goal is to stay on top of the mountain for as long as possible. And as you enter the second act of your life, you have the freedom to work only when you want to.
Get help with the question “How much do I need for retirement?”
What is your number? Having trouble finding a realistic amount that makes sense? Or are you worried about not putting in the work necessary to build a money machine to support you in retirement? If you need help using a retirement planning calculator or developing a strategy to create a lifetime income stream, consider working with a trustee or hiring an outcomes coach who can help you on your journey to financial freedom.
Remember clarity is power. Once you’ve found your number using a retirement savings calculator, set goals to get there. And don’t forget to enjoy the journey. You can live your life with joy and gratitude every day, not just in retirement.
Team Tony cultivates, curates and shares the stories and core principles of Tony Robbins to help others live extraordinary lives.