How much do I Need to Retire – Retirement Savings Calculator

Did you know that nearly 45% of Americans that retired last year did so because of health problems, to care for a family member or because they were forced to retire. 64% of working Americans are not on track to retire comfortably. This number is even higher in minorities. Do you have money saved if you were forced to retire involuntarily? Are you making these 5 mistakes that are putting your retirement in jeopardy? Use my retirement savings calculator to find out.

I get it! You are nowhere close to retiring from work yet. I am not either. But you need to have a plan before you even think of retiring. Do you know how much you need to save before retiring? Use our retirement savings calculator to find out. Also, use this retirement calculator to learn how much you could potentially save based on how much you contribute towards retirement each month. While it’s impossible to predict how much you need to save and a lot of it is based on a few assumptions, this retirement savings calculator will help you get a rough estimate and give you a general sense of where you need to be.

Let’s go step by step.

Let’s first determine your annual income requirement post retirement. Typically, people have their mortgage paid off by the time they retire. So you may think you need less than your pre-retirement income.

However, don’t forget to consider these 3 important factors for retirement –

In retirement, you won’t be working and with all that spare time, you may want to travel or take up hobbies. And guess what that means?

A greater income requirement.

Second, your children may be out of school and you may want to support their future education, or business and that warrants some income.

Finally, as you age, you may incur medical expenses. And this, by far, is the biggest factor to consider. I don’t need to tell you but quality healthcare in the United States is very expensive and you want to make sure that you have enough saved to pay for insurance and any unexpected bills. Plus long-term care can run into 6 figures a year for just one person.

Depending on your personal situation, your annual retirement income requirement could be anywhere between 60 to 120% of your pre-retirement income. It’s always better to err on the side on caution.

The next step is determining your mortality. Like it or not, YOLO is drivel. You don’t live once. You die once. You do live, hopefully, a long, healthy, happy life.

With the evolution of medicine, people are living longer than their ancestors. The average life expectancy for a regular individual is between 75 and 80 years.

So if you plan to retire at 60, expect to live about 15 to 20 years, on average, in retirement. And that’s just the average. You may even live to a 100, in which case, be prepared to live about 40 years in retirement. And if you plan to retire early, in your 40s or 50s, you could spend a lot many years in retirement.

You don’t want to run out of money before you die and you also don’t want to be sad to live longer just because you are broke.

How to use this retirement savings calculator

This retirement savings calculator makes some assumptions on inflation, mortality, and estimated rate of return on your investments. Have fun with the inputs and calculate how much you will need to save before you retire.

Retirement mistakes to avoid

The biggest one is ignoring your health. Managing your health is just as important as managing your finances.Health-related expenses are the biggest factor keeping people working for longer. Medical insurance is expensive and so are medical costs.

Not paying off debt before retirement – You want to have most, if not all, of your debt, and all of your consumer and student debt paid off.

Claiming social security early – You can start receiving social security benefits as early as age 62. However, if you delay taking benefits until you reach the age of 70, you are able to take full benefit of social security.

Taking too much risk closer to retirement – Often people who haven’t saved enough for retirement tend to risk their portfolios in expectation of high returns as they get close to retirement. This is not a good strategy, since your portfolio wont have sufficient time to recover when your time horizon is short.

Taking very little risk when you are young – Many young people don’t start investing early because of fear and lack of financial education and miss out on years of compounding.

I want to leave you with a few takeaways.

Start investing early towards your retirement. If you have money for only one type of investment, prioritize your retirement portfolio. Roth IRA, IRA, 401(k) are some of the simplest portfolios to invest in. There are tax advantages to investing for retirement. Let me know in the comments, how you are planning to invest and if you are prepared for retirement.