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How Much Do I Need To Retire?

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Probably the most perplexing question posed to financial advisors is, “How much do I need to retire?”

The short answer is probably, “More.”

You may have heard that you need $1 million in the bank to retire comfortably, but truth be told, that may not be enough, depending on your needs. There is no universal retirement target number because everyone’s financial needs are unique, so take a deep dive into your individual situation en route to retirement planning success.

Here’s how much you may need and where you can start saving and investing for retirement.

Step 1: Set a lifestyle goal

When you picture your life as a retiree, whether that’s 40 or 14 years from now, what does that life look like? Setting your retirement lifestyle goal will determine your financial needs for retirement. It’s not just about making sure your bills are covered; you’ve got to take your lifestyle choices into account as well.

You may find that you plan to continue your frugal lifestyle into retirement but will ramp up your travel and need to add an additional $20,000 a year to see the world. Maybe you’re itching to begin an entrepreneurial encore career or plan to stay busy working part-time. Perhaps your number one goal is to spend time with your grandchildren and you plan to move to be in the same city.

Draw up a blueprint of your retired lifestyle. For example, the chart below shows an estimated breakdown of expenses for a retiree with a $273,000-a-year lifestyle. This increased lifestyle cost comes with an estimated retirement savings need of $4 million.

Planning your lifestyle in retirement. Source: WSJ
Planning your lifestyle in retirement. Source: WSJ

Step 2. Determine your cost of living

Now that you’ve figured out how you want to live, let’s look at how you actually live and look at what bills you need to have covered by your retirement income. If you will have your home paid off by the time you retire, will you keep the same home or plan to move to another city?

If you live in a very expensive city, you could consider moving so you can drop your costs and allow your retirement dollars to stretch further. If your kids will still be in college when you retire, do you have a separate plan to cover their college costs, or does that need to be factored into your retirement costs?

Debt that follows you into retirement can drain your savings, so have a plan to pay debt off before you stop working or plan to save enough to become debt-free during retirement.

Step 3. Set a timeline

Are you looking to be part of the FIRE movement (in which you plan to get out of your cubicle as soon as it is financially feasible) do you enjoy your career and plan to work as long as you’re in good health?

The average American lives 78.6 years, but your life expectancy will really depend on your genetics and health. If you are in good health and your parents lived into their 90s, you may well need to plan for a 30-year retirement.

Step 4. Consider overall targets

Most financial advisors suggest that you need 75% to 85% of your current annual income in retirement. This assumes you will pay less in taxes, commuting costs, work clothes, and other work-associated expenses.

It also assumes you will have paid off your debts and own your home. Alternatively, you could calculate your annual expenses and multiply them by 25 or however many years you will estimate you will live after retirement.

Step 5. Determine your retirement income sources

You’ll likely have several sources of retirement income that will not all draw from your nest egg. Assuming you worked for pay, you can draw Social Security benefits, which average to around $1,400 a month, depending on your income and years worked.

If you’re one of the lucky few to draw a pension, add that benefit into your retirement income stream. If you plan to continue working, even part-time, include that estimated income as well. Ideally, you can live off of your Social Security, pension and possible part-time employment without having to draw too heavily on your cash savings which could be held in a 401(k), individual retirement account (IRA), mutual funds, stocks, annuities, bonds, and other investment vehicles.

Step 6. Get prepared

After you calculate your savings targets, is your planned retirement attainable for you? Can you save what you need by the time you get to retirement? If not, you may need to reevaluate your planned retirement lifestyle to better suit your finances or find a way to increase your savings rate to meet your targets.

Life circumstances may come up that change your retirement plans and needs. For example, if you or your spouse are diagnosed with a chronic illness, you have additional children later in life, you care for a family member with a health issue, or if there is a downturn in the market, you’ll want to be prepared for any eventuality.

Step 7: Start investing in a retirement fund

If you have an employer-sponsored 401(k), you’ll definitely want to start contributing as soon as possible. You can also open up an Individual Retirement Account (IRA) or a Roth IRA.

You can check out some of Benzinga’s favorite brokerages for IRAs and Roth IRAs. Here’s a quick look at the picks.

Broker Best For Commissions Account Minimum Choose your platform
TradeStation
  • Advanced traders
  • Options and futures traders
  • Active stock traders
$0 $0
Get started securely through TradeStation’s website
1 Minute Review

TradeStation is for advanced traders who need a comprehensive platform. The brokerage offers an impressive range of investable assets as frequent and professional traders appreciate its wide range of analysis tools. TradeStation’s app is also equally effective, offering full platform capabilities.

Pros
  • Comprehensive trading platform and professional-grade tools
  • Wide range of tradable securities
  • Fully-operational mobile app
Cons
  • Confusing pricing structure to leave new traders with a weak understanding of what they pay
  • Cluttered layout to make navigating TradeStation’s platform more difficult than it should be
Current Promotion

Get $100 when you open an account with $500 or more

TD Ameritrade
  • Novice investors
  • Retirement savers
  • Day traders
$0 $6.95 for OTC Stocks $0
Get started securely through TD Ameritrade’s website
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Current Promotion

$600 cash & free trades for 60 days

eTrade
  • Active traders
  • Derivatives traders
  • Retirement savers
$0 $0
Compare Brokers securely through eTrade’s website
1 Minute Review

E*TRADE is an online discount trading house that offers brokerage and banking services to individuals and businesses. One of the first brokers to embrace online trading, E*TRADE not only survived both the dot-com bubble and Recession — it thrived. You can choose from two different platforms (one basic, one advanced). E*TRADE is a suitable broker for traders of most skill levels, whether you want to buy mutual funds and hold them for decades or dabble in options swing trading. E*TRADE offers a library of research and education materials to help you out.

Pros
  • Sophisticated trading platforms
  • Wide range of tradable assets
  • Exceptional customer service
Cons
  • Limited currency trading
  • Higher margin rates than competitors
  • No paper trading on its standard platform
Current Promotion

Deposit or transfer $5,000 to get $100 back

Firstrade
  • New traders looking for a simple platform layout
  • Native Chinese speakers seeking research and education tools in Chinese
  • Mobile traders who needs a secure and well-designed app
$0 when you trade stocks, ETFs, options, and mutual funds online $0
Compare Brokers securely through Firstrade’s website
1 Minute Review

Easy-to-use and quick to master, Firstrade offers new and veteran traders alike a simple way to start investing with rock-bottom pricing. Firstrade’s platform is simple and streamlined, and it extends this convenience to its mobile app. The company’s $0 commissions on stocks, ETFs, mutual funds and even options make Firstrade especially appealing for frequent traders. Firstrade also offers margin trading, though rates are a bit more expensive than some competitors. Firstrade also currently doesn’t offer access to futures or forex trading, and some more advanced traders may dislike the broker’s simple platform.

Pros
  • Simple platform easy enough for even complete novices
  • Quick Bar tool for easy trading throughout the day
  • Free access to Morningstar trading reports and other news in both English and Chinese
  • Secure mobile app with enhanced security and trading features
Cons
  • Simple brokerage platform doesn’t include as many charting tools as competitors
  • No access to futures or forex markets
Current Promotion

Get up to $600 when you open and fund an account today!

Final Thoughts

Because you will likely have more than one source of retirement income, you don’t need to be at your target by the time you retire as long as you have a plan to meet it. Interest growth is not just a benefit for the young.

Even after you retire, your money will keep working for you. If you keep your savings contribution to your overall retirement income to a conservative withdrawal rate of 4%, you’ll likely have a higher overall rate of return which guarantees that you aren’t eating into your principal and can live off of the interest gained on your investment every year. Then, adjust that rate annually based on inflation and your needs.

Remember, financial planning is personal and your retirement may not look like anyone else’s. There are so many unique factors for each individual to consider. Some of those factors may even require you to revise your retirement goals.

For example, you may find that your savings cannot reach your retirement lifestyle goal due to a downturn in the market or that it has to shift based on your family needs and emerging health issues. Retirement planning is a moving target, but planning ahead can help you reach your goals, no matter what they are.

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