Here is another way to look at retirement and how much you should have saved. Many of the calculators I see online overestimate your needs. For example, the calculators think that just because you want to travel, you will need an extra $1K-$2K per month. I have managed traveling on a lot less and I know I could continue this when I am older as well. Therefore, a way to always know what you will need as the total sum in retirement is to see how much you want to earn. Let's say that you want to earn $40,000 a year in retirement. If you can make a 4% yearly return on your money (which is conservative), then you'll need $40,000/.04=$1,000,000. You can adjust this as times or living expectations change. However, there is always an easy way to calculate what you will need in the future. This is of course a rough estimate as it does not calculate taxes, social security, etc.
To see how much you need to save per month to reach your goal use this Bankrate Savings Calculator.
I think 4% is far from conservative. Look at savings rates, CD rates, money markets, etc. The only thing making over that is the stock market, and that's too volatile to have retirement funds in. Realistically, I'm planning on only earning 2.5% off my savings in retirement. If that's overly conservative, so be it, I'll be living the high life, but at least I won't be suffering like current retirees who probably planned on >4% annual return.
ReplyDeleteYou are right, 4% is only conservative in an average stock market. Therefore, you have to adjust every calculation, including this one based on what you feel comfortable with. 4% is a guideline. Once you know how it works, then you could use 2.5% (pretty much guaranteed) or 20% (if you want to be unrealistic). I like to be overly conservative in my calculations as well since, as you said, you can live it up if you were wrong.
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