How Much Do I Need to Retire? Retirement Planning 101


Hi! I’m Kirsten from The Motley Fool. In this FAQ, we’re going to answer a question
everyone wants to know — how much money do I need to retire? First of all, it’s great
that you’re asking yourself this question. Having enough for retirement doesn’t
just happen. It’s a coordinated effort. That effort is easier if you have a goal in mind.
So, how much money do you need to retire? The real answer is that it’s different for
everyone, but let’s start with the general rule and break down how that can vary. Most studies agree that in order to retire,
you will need about 12X your annual salary at retirement age. If that sounds
like a lot, that’s because it is. That’s why it’s so important to save — or,
as I like to think of it, paying your future self. If that number sounds intimidating, let’s
look at all the ways you can build up to that. First of all, that total amount you need for
retirement does include Social Security. Most people have been paying into Social Security
a little bit with each paycheck every year that they work. If that’s you, you can expect to receive
a monthly benefit check in retirement. To maximize your monthly check,
there’s a couple of things you can do. One, make as high a salary as you possibly can.
You were probably already doing that one. Two, work a full 35 years, because that’s
how many years the Social Security Administration is basing your benefits on. And, as a bonus, if you’re making a higher
salary toward the end of your career, which is quite common, you can work more than 35 years
to increase your monthly Social Security benefit check. Three, delay retirement. We here at The Motley Fool like to say that
70 is the new 65 when it comes to retirement age. For more details on calculating your expected
monthly Social Security benefits and how to optimize that check, check out
the link in the description below. But even then, Social Security will not
cover all that you need in retirement. In its benefit overview document,
the Social Security Administration makes it clear — Social Security was never meant to be the only
source of income for people when they retire. It is designed to replace a percentage of
your income, depending on how much you earn. For very low earners, Social Security can
provide up to 75% of your retirement needs. For medium earners, about 40%.
For high earners, about 27%. The rest of your retirement funds will come
from whatever you have saved, so it’s important to make sure you are saving. The best place to start, if it’s available
to you, is an employee savings plan. Most commonly, this is a 401(k). If your
employer offers one, make sure you’re using it. This is a tax-advantaged account for saving,
meaning you don’t have to pay any taxes now on the money you
contribute to this account. Plus, according to the Bureau of Labor Statistics,
roughly half of companies offer a 401(k) match, up to an average of 3%. That means, as an example, that if you contributed
3% of your paycheck to this account, your employer will match it
with another 3%. That’s free money. Make sure to save at least enough
to get the full employer’s match. Ideally, a solid personal savings goal is 15% of
your paycheck, including any company match. If your company will match up to 5%, you should
personally sock away 10% of your paycheck into your workplace retirement
account, for a total of 15% saved. By the way, if you don’t have a workplace
plan, you can still save in an individual retirement account, an IRA; or, if you’re
self-employed, you can use a solo 401(k). The beauty of all these retirement accounts
is that your money grows in two ways. First, it will grow as you
steadily contribute to it each month. But second, all the money in your account
will be invested and will grow all on its own through the
magic of compounding interest. For a quick example, investing $3,000 per
year for 40 years at an annual rate of 8% yields over $750,000 come retirement time. That may be enough for people with a relatively
low cost of living, but it might not be close to enough for folks that head
into retirement with a lot of expenses. That’s why it’s also important to think about
the money you have going out when you’re making your retirement plans. Maybe you had children who
had since moved out of your home. Consider downsizing. If you live in an expensive area, consider
moving somewhere with a lower cost of living. Maybe even move to
a state with no state income tax. That means fewer taxes on Social Security benefits,
401(k) withdrawals, and other retirement income. There’s a reason Florida is
such a popular retirement destination. There isn’t a one-size-fits-all answer to
how much money you need to comfortably retire, but understanding the 12X income rule, realizing
that Social Security is just a part of the retirement picture, and adjusting expenses will put
you on the path to finding the right figure for yourself. Thanks for watching, everyone! If you have any thoughts on the topic or have any
future topics you’d like to request, drop a comment below. If you want more help getting started,
check out our investing starter kit. It’s free. You can find it over at fool.com/start. If you enjoyed this video, give us a thumbs
up and subscribe to get more content like this from The Motley Fool. Fool on!

18 thoughts on “How Much Do I Need to Retire? Retirement Planning 101”

  1. I know a rule that you should have invested 25x what you need each year.
    That way you can supposedly live on indefinitely.

  2. Something Motley fool will never tell you! Or any other investment house.
    Preparing for the Collapse of the Petrodollar System Followthemoney.com https://followthemoney.com/preparing-for-the-collapse-of-the-petrodollar-system-part-1/ via Instapaper

  3. I should have Tom Petty's Free Fallin' playing in the background as I write this (check out the market)… I like to think of investing as creating generational wealth — for retirement, for my kids, etc. I prefer quality companies that pay dividends, but there are lots of strategies that can work out there. The key is just to start, no matter your age… Thanks for the video, great advice. ๐Ÿ™‚

  4. Lol the New 65 is 70. That's very funny considering most of Motley Fools Staff have Big Bank Accounts, as in millionaire status, at least on management Level.Don't worry i am A Fool Subscriber its just that Sounds a lil crazy when most fool staff will retire in there 50 And early 60s and some in there 40s. Would You work till 70 or 75 ? Probably Not !

  5. Itโ€™s like the whole industry scripts the same information and Iโ€™m not sure why I still listen. I gave up 15 years ago and created my own projection on what I would need and now that Iโ€™m retired converted to a withdrawal and market appreciation projections. The 401 is nice, the social security recommendation is misleading, and I could go on. Come up with a real plan that everyone can use to come up with their individual plan.

  6. 401k and Roth IRA 25 years ago probably work now people invest into single stocks and bitcoin they are high risk and higher returns.

  7. I agree that there are a number of withdrawal strategies that will work. However, they are driven by your expenses and your tax position. You should forecast both and revise (especially your estimated taxes) annually. If you don't know your desired spending, net of tax, then it is hard to know how much you need and what the risk profile should be to achieve that.

  8. almost all of these suppose to be gurus never talked about the fact that on retirement the house is paid off, your children are done with college and does not need help financially. get real!

  9. My strategies for an Early Retirement

    1. Replace active income with passive income sources (Real Estate Rentals For Cash Flow)
    2. Reduce personal operating cost (Housing costs are typically the largest)
    3. Automate income streams (Property management, online businesses)
    4. Leave the 9 to 5 =) (Success)

  10. Pay off the mortgage on your right sized house, pay off a new car, make sure you have medical insurance, learn to live entirely off your social security and pension benefit if available, leave your savings for emergencies and special events, otherwise leave your nestegg alone! If you can do this then you are ready to retire comfortably. There is no rule of thumb minimum savings required, it's different for every lifestyle. You may have a million in the bank, but if you spend $200,000 a year, you have only 5 years savings. It's all a matter of habits. A person with $50,000 in the bank that lives off S.S and pension only, has many, many years of comfortable retirement! I retired at 65, 4 years ago, and haven't touched my savings, and my wife and I live comfortably on our S.S. and my small pension. I actually am able to put money back into my savings. If this dumbass can do it, so can you,

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