Financial Freedom: How Much Money Do You Need to Retire?

Financial freedom is kind of a big deal in today’s world. We always want to get to that point where we can leave the workforce and enjoy the rest of our lives in peace. Yet, many people are curious about the amount of money you need to get to that point. How much money do you need to retire? How much money do you need to never work again? These are all valid questions, and I will try to answer those. Buckle up; we are starting.

A Quick Reminder: Your Retirement Needs Vary Depending on Your Lifestyle and Individual Factors

I should start by reminding you, all info that I’ll provide can and will vary depending on your individual conditions. Your financial goals, lifestyle, the area that you live in, and many other factors should be considered carefully. That being said, I’ll try to give you some overall information that could make the transition easier.

Additionally, some tactics that I give might not work for you as well. For example, if I say you should save like 5% of your monthly salary into a retirement account, you should adjust that percentage according to your lifestyle and goals. You can get some help from a professional.

So, How Much Money Do You Need to Retire?

According to experts, one should achieve a retirement income equal to 80% of your pre-retirement income to maintain the same level of lifestyle. For example, if you make $200,000 a year (first of all, if you have this amount of income, well done!), you should at least make $160,000 to maintain your lifestyle. Most of the time, retired people spend less than they do while they work.

Sometimes it might be hard to save enough money if you don’t earn that much to begin with. But there are some certain ways to save enough to enjoy your retirement without worrying about your income. For example, you can take advantage of employer matches, strategic investments, and compound interest.

Here Are Some Ways to Save for Your Retirement

There are a couple of ways to increase your chances of having an easier time when it comes to saving for your retirement. Here are some of the most popular ones:

Employer-Sponsored Retirement Plans

Today, many employers offer retirement plans like 401(k), 403(b) or 457 plans. These plans require employees to contribute a percentage or a portion of their salaries to their retirement accounts. Plus, some employers can also make some matching contributions that could increase your saved amount.

IRAs or Individual Retirement Accounts

There are two types of IRAs: Traditional IRA and Roth IRA. In Traditional IRAs, your contributions might be tax-deductible. On the other hand, your contributions to a Roth IRA are made with after-tax money. Because of their advantages, both IRAs are quite popular among people who want to save enough for their retirement.

Taxable Investment Accounts

Retirement-specific accounts are not the only ways to save for retirement. You can invest in taxable brokerage accounts and save some money with smart investments. These are often flexible and accessible but they don’t have the same tax advantages as previous options. Yet, they can be a great chance to save some good amounts of money.

Pension Plans

Some employers offer pension plans that can provide a guaranteed stream of money during your retirement. The amount of money you receive during retirement is determined by the length of time you have worked and the salaries you receive. While they are not common, it is still an available option in some workplaces.

Some Tips to Longer Lasting Retirement Savings:

First, you need to plan for unexpected expenses. Life’s a rollercoaster and it might be hard to deal with the situation if you have a limited amount of money. It is always a great idea to save up some money on the side to create an emergency fund that covers a minimum of, let’s say, six months’ worth of expenses.

Also, it would be a wise choice to avoid additional fees. For example, you might want to choose a low-fee or fee-free option when choosing an investment option. Plus, you might want to obey the rules of your IRA to not pay additional fees like RMD (required minimum distribution).

Yes, you planned to leave the workforce completely and enjoy your retirement but as we said before, life happens. You might consider working half-time to earn some additional bucks that can support you. But here’s the problem: If you earn more than your Social Security’s annual income limit, your Social Security benefits can be reduced.

Lastly, you can reduce your expenses and make some slight adjustments to your lifestyle. You might try to save some money on your grocery trips or make some cancellations on your unnecessary subscriptions. Also, you might want to move into a smaller house to make things easier for you. You might have been able to pay your mortgage for your 4-bedroom house when you were in your prime time, but retirement is just different.

Final Words

Although retirement is often imagined as a time to enjoy life to the fullest for many, it is obvious that life cannot be enjoyed without money in today’s world. In order to live these retirement days in its full glory, we need to prepare for retirement while working. In this post, I have told you some considerations and tips on how we can make this retirement period more enjoyable. It is useful to remind you again: Although some of what I have mentioned here may vary depending on your lifestyle and what you want to do in retirement, it can give you a general idea. I hope you have a life where you can enjoy your retirement to your heart’s content. See you next time.