Most people are underprepared for retirement. Many underestimate how much investment they would need to be able to live comfortably. How much do you think you’ll need to save to be able to retire and relax? Use this retirement calculator to see how much you can potentially have at retirement age.
There are various guidelines to arrive at a number. Some say they would be comfortable with a million dollars or two in their accounts. A common way is to use a number between 60% and 100% of your pre-retirement income as your annual income. Another way is to use a percentage of the market value of your home.
You may not need 100% of your pre-retirement income, assuming that your mortgage and other loans have been paid off. You may also be in a lower tax bracket. So you might need only 60% of your pre-retirement income in retirement. However, after retirement you may have spare time and may want to travel more. Your healthcare expenses may be higher. If you plan to travel very frequently, you may likely need 100% of your pre-retirement income.
To use the below calculator, enter your current age, the age you plan to retire, your current retirement savings, the amount you plan to contribute to your retirement account each month, and the expected rate of return from your retirement account. Note that the S&P500 has returned about 10% annualized between 1926 and 2018, with a lot of ups and downs in between. Financial pundits expect the next decade to return lower than average returns. So please be conservative. Also note that this calculator is just going to provide you with an estimate and actual returns may never realize.
Now that you know how much you can save by retirement, let's see if that amount is going to be enough for you to live a cushy retired life, to leave some inheritance to your kids, to travel, to spend on healthcare, etc.
Let's say your pre-retirement income is $100,000 and let's assume that you would like to earn 70% of that amount after you retire. That takes us to $70,000. Let's assume a conservative rate of 4% at which you can withdraw from your retirement account each year. To be safely able to make that withdrawal without running out of savings you would need 70,000/0.04 = $1,750,000 in your account at retirement.
Come up with your own estimates and then play with the above calculator to see how you can arrive at your retirement goal. Then, if the number is not enough to match your retirement goals, see if you can cut your monthly expenses and put that money in your retirement account. Or perhaps you need to adjust your retirement age. Many people are unprepared for what to expect in retirement. Plan early and save as much as you can.