How Much Money to Retire – What is Enough?

The question of "How much money to retire" can be quite easily answered after you work through your retirement and financial plan.

As after completing these you will have a clear picture of what retirement means for you and what it might cost.

However getting a meaningful answer is not that easy.

Money is something you got to make in case you don’t die ~ Max Asnas

Retirement goals and objectives

Financial goals

In your retirement plan you will have considered and defined your retirement goals and set out your financial objectives?

  • Do you plan to retire with your capital intact or are you planning to run out on the last day?
  • What safety buffer do you want to allow for?
  • If any, what are your objectives regarding legacies and inheritances?

Lifestyle and health

You will have also carefully worked through your planned retirement lifestyle and considered any health contingencies.

So after deciding these, calculating how much money to retire is simply adding together:

  • The amount of money you need to live your chosen lifestyle till the end of your life;
  • Plus the amount you need to achieve your financial objectives with regard to capital preservation and legacies
  • Plus the estimated safety buffer.

When you have this amount your answer to the "When can I retire?" question will be ... "Right now!"

The Baby Boomer crisis

As it is now many Baby Boomers will never have enough money to retire (having enough money to support their planned lifestyle) and will probably have to rely on some kind of external financial support to exist.

Fear of running out of money

For older Americans surveyed by Allianz Life Insurance Co., death is not such a big deal. That is, not when compared with the threat of a dwindling bank account. In a poll of people between the ages of 44 and 75, 61% said that running out of money was their biggest fear. The remaining 39% thought death was scarier. The context of the survey is important. In the poll of 3,257 people a whopping 92% of respondents agreed that "The United States is facing a crisis in its retirement system”.

Recently I heard a sad story about an old woman in her 90's who was  trying to get a job as she had run out of money.

Financial calculators

Many of the how much money to retire calculators lead you to believe that the future will look like the past. It won't, so you must be as pragmatic (read pessimistic) as possible when making your assumptions.

If you think back, the world, and your life, has not been shaped by predictable, expected changes but by so called "black swans" or highly unpredictable happenings.

However, as they are unpredictable, we must just ensure that we continue to regularly re-evaluate our plan based on changing circumstances.

How much money to retire

The rule of thumb estimate assuming the same standard of living, is that your retirement income should be about 70-80% of your pre-retirement income.

However this can vary significantly with different personal circumstances.

Your increased leisure time may allow you to take up an expensive sport or hobby. International travel may also become an attraction.  These kinds of lifestyle changes , or a divorce in later life, will result a large increase in how much money you need to retire and can quickly gobble up any potential savings.

You may also have to consider providing financial support to aging parents who may live on for another 10 to 15 years after you have retired.

Social security

Although social security is available in many First World countries, it is either totally inadequate or non-existent in many Third World countries. This will result in growing demands for the elderly to compete head on with resources required for the children.

Remember that, for almost everyone, retirement will be the biggest event you've ever planned in your life. There are many unknowns ... so be aware.

Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest, but not so fully that you run out of money
~ Jonathan Clements

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Retirement today is a scary prospect for many folks. Financial, Health and Future challenges! How prepared are you?