How Much to Retire?

QUESTION:
A listener asks how much money they need to save in order to retire.

ANSWER:


Read what Dave says::
It just depends on how you want to retire.  Some people are willing to retire on $20,000 a year and others want to live on $80,000 a year. 

A good rule of thumb when you retire is to be able to live on 8% of your nest egg.  Here’s why: if your mutual funds continue to do what they’ve always done, averaging around 12%, you’ll have 4% in there to cover the rate of inflation each year.

For example, if you want to live on $40,000 a year, you need $500,000 in your nest egg. Take the amount you want to live on each year after you retire, divide it by .08, and that will give you what you need to have saved for retirement.