How Much Is Enough To Retire?
Last week, the Lotto Max lottery was an estimated $60 million. One ticket was sold in Brampton.
This Monday, the morning show I watched was talking about how they wish they'd won the lottery prize and how much it would take to quit their jobs. One of the hosts made a comment that $1 million was not enough to retire.
So how much is enough to retire?
Well, that depends on your amount of spending and how much you saved.
A lot of people will knock the four percent rule. They say it's unrealistic. It's not going to last long enough until you pass. You'll be eating cans of cat food when you're 80. Essentially, the four percent rule is the assumption that your investments and savings will grow 4% each year and each year, you'd only need this four percent to live.
The four percent rule factors in inflation of 2-3% among other buffers.
You don't also need to follow the four percent rule. You could also follow the six percent rule or the two percent rule... it's really the adaptable to your comfort level percent rule.
Now we need to know your estimated annual spending. Assuming you need to spend $40,000 a year to live comfortably, you'd need $1,000,000 of savings.
If you spend $80,000 a year and plan to continue to spend $80,000 a year in retirement, that's $2,000,000 in savings you'd need.
How did I come up with these numbers? Well, divide $40,000 by 0.04 and you'd get $1,000,000. Divide $80,000 by 0.04 and you'd get $2,000,000.
Obviously, the less you spend each year, the less you need to save in order to retire.
Why are we assuming our savings will grow 4%? Well, historically, over a long period of time, stock markets have returned 9% each year.
If you factor in inflation of 3%, that's 6% remaining. Theoretically.
If you decided to retire in January 2015, your portfolio might be down 10% in September 2015. But as long as you stick it out, it should be fine (historically speaking).
That's all we need to know. If you want to make trips or do something fancy like eat out every other night, then you'll need to save more.
So how much do we need?
Everyone is different. There isn't that one number that fits all.
This Monday, the morning show I watched was talking about how they wish they'd won the lottery prize and how much it would take to quit their jobs. One of the hosts made a comment that $1 million was not enough to retire.
So how much is enough to retire?
Well, that depends on your amount of spending and how much you saved.
A lot of people will knock the four percent rule. They say it's unrealistic. It's not going to last long enough until you pass. You'll be eating cans of cat food when you're 80. Essentially, the four percent rule is the assumption that your investments and savings will grow 4% each year and each year, you'd only need this four percent to live.
The four percent rule factors in inflation of 2-3% among other buffers.
You don't also need to follow the four percent rule. You could also follow the six percent rule or the two percent rule... it's really the adaptable to your comfort level percent rule.
Now we need to know your estimated annual spending. Assuming you need to spend $40,000 a year to live comfortably, you'd need $1,000,000 of savings.
If you spend $80,000 a year and plan to continue to spend $80,000 a year in retirement, that's $2,000,000 in savings you'd need.
How did I come up with these numbers? Well, divide $40,000 by 0.04 and you'd get $1,000,000. Divide $80,000 by 0.04 and you'd get $2,000,000.
Obviously, the less you spend each year, the less you need to save in order to retire.
Why are we assuming our savings will grow 4%? Well, historically, over a long period of time, stock markets have returned 9% each year.
If you factor in inflation of 3%, that's 6% remaining. Theoretically.
If you decided to retire in January 2015, your portfolio might be down 10% in September 2015. But as long as you stick it out, it should be fine (historically speaking).
That's all we need to know. If you want to make trips or do something fancy like eat out every other night, then you'll need to save more.
So how much do we need?
Everyone is different. There isn't that one number that fits all.
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