How Much Do I Need to Save to Retire?
Investing Minute | Investing Tips in 60 Seconds From Dave Ramsey

August 2, 2011
How Much Do I Need to Save to Retire?
The Tip:
Most of us worry about having enough for retirement because we don’t know how much we’ll need and how we’re going to get it. With the right advice and a few quick calculations, you can answer both these questions!

Retirement planning polls and studies consistently show that Americans are increasingly concerned they won’t have enough money for retirement. That’s not surprising since half of us simply guess how much we’ll need, and almost as many don’t even have a plan to reach our retirement goals.

Answering these two important questions will go a long way to bringing you peace of mind about retirement.

How Much Will It Take?
Let’s be honest. Nailing down a dollar figure that will give you a comfortable retirement is going to take some work. In fact, this is the perfect question to ask an expert. Financial advisors will help you estimate your retirement expenses, but here are a few things you’ll need to consider:

No debt: Being and staying debt-free is the key to building wealth, and it will stretch your retirement dollars.

Medical costs: The average couple retiring at age 65 will spend $285,000 in health care costs in retirement. You could end up spending significantly more or less.

Long-term care needs: Folks who reach age 65 have a 60% chance of needing long-term care either in a nursing home or assisted-living facility. Long-term care insurance will protect your retirement savings, so factor those costs into your planning.

These issues are just for starters. You’ll also need to consider what you’ll do with your home, what sources of income you’ll have, and what type of lifestyle you plan to live. Will you travel? Start a new business? Go back to school? There’s no better time to get these answers than right now.

Do The Math
Once you’ve got a goal, you can take steps to reach it. Let’s say your goal is to have a $60,000 annual income in retirement. How large will your nest egg need to be to provide that income? With your investments earning an average of 12% per year, we’ll estimate inflation at 4% per year. To keep your nest egg intact, you’ll live on 8%.

Annual income you wish to retire on:           $60,000
                                       Divide by:                  .08
                             Retirement goal:          $750,000

So how much do you need to put away each month to reach your goal? That depends on how long you have to invest. Check the chart to find the factor that matches your timeline:

  Retirement goal:     $750,000
Multiply by factor:      .000436 (for a 30-year-old with 35 years until retirement)
                                    $327 per month

No More Excuses!
So what are you waiting for? Dave’s investing Endorsed Local Providers are experienced professionals who can help you set your retirement goal and get you investing so you can reach that goal. You can trust your ELP to give you the same great investing advice Dave would. Contact your ELP today!

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