This question will change depending on your particular situation. Are you planning on spending the same amount per month as you do now, in retirement?
If so, then we can take a look at those numbers and I can show you an easy way to figure out how much you'll need.
We hear from people a lot, that they think they will spend less money in retirement. I've found that to be completely incorrect and not true! I've actually experienced the opposite in most cases. Most people spend more money in retirement.
They want to travel more, golf more, see their kids and grandkids more. And why shouldn't they? If they didn't, what are you going to do, sit around and do nothing all day!?
So if you plan to do more once you retire, then you're doing right now, we're going to have to add that to your budget in retirement. If you don't have that factored into you retirement budget, make sure you take that into account.
So add up all of your living expenses, groceries, entertainment, and all the extra fun stuff you're into - to find out how much money you need each month to live the life you want. What did you get?
Now, say you have it all budgeted out and have determined you're going to need $5,000 per month in order to live the life you want. Have Christmas's, entertain, go to the movies, do all the things you do now, (and more!) in retirement.
There's tons of these fancy calculators out there that will try to predict what you need, but i'm going to show you a super simple way.
Multiple that "monthly expenses" number that you just came up with by 12 months, to see your annual expenses.
5,000 x 12 months = 60,000
Then, multiply your annual number by either 5% or 2.88%.
Why 5%? Well, the financial industry says that over time when you look at the average 401k that 5% is a good estimate for what people generally return in the long haul. If you want to be extra safe, the financial industry is now saying to use 2.88% as a conservative estimate. This is to avoid what happened back in 2008, when the Stock Market crashed due to the Great Recession. When this happened, the value of retirees investment and retirement accounts dropped, and they were unable to make their retirement savings last because the interest they were earning went down or away completely! They outlived their money. To avoid that, we'll use 2.88%.
60,000 / 2.88% = 2.08 Million
What did you get?
Using our $5,000 example, you would need 2.08 Million!! That's what you would need to save up in order to live off of the interest. And that's the goal, for your investment retirement accounts to grow so that at some point in the future, you can live off of the interest.
That's how much you would need to save and invest to have enough money for it to last as long as you live. That is a tall order for most people. If you have an extra thousand or couple thousand dollars per month, it would take you a long time to save up that much money.
What if I told you there another way? While it might be hard to save enough to withdraw $5,000 per month for the rest of your life, it is NOT that hard to build up $5,000 per month in Passive Monthly Income from Alternative Investments.
This is something that can effectively replace your retirement plan, and many people are switching to this strategy.
Regardless of how you invest, be sure to invest in a system that can for sure get you there, something that has been proven time and time again.
Take a look at the Income Snowball System and see how it can work for you to create dependable, recurring monthly income for the rest of your life.
