How Much Money Do You Need to Retire?

Many people underestimate how much money they need to save for retirement. As the average lifespan keeps increasing, particularly in developed countries such as the United States, your retirement fund may need to support you for several decades. A safe rule of thumb is that if you have twenty times your current salary in a retirement fund, you can live off of the interest indefinitely; more realistically, twelve years' salary is probably sufficient.

Of course not; who can? That's why it's important to start saving for retirement early on: most of the savings you build up will actually come from compound interest rather than money you actually put in. Additionally, there are a number of factors that can reduce the amount you'll actually need, such as working longer or having a supplemental pension.

You might not need as much money once you're retired; after all, you no longer need to drive to work, and if you plan correctly, much of your income should be tax-exempt. Many financial planners suggest that you'll need only 80% of your current income after figuring in these factors.

Of course, if you spend more than you make now, then you need to base your estimates on what you actually spend, not what you make! With any luck you're actually living on less than you make and sticking a good chunk in savings, but circumstances don't always make that practical. Additionally, it's possible that you'll want to upgrade your standard of living after you retire; for example, doing some travel that you never had time for while you were employed. Additionally, some costs unavoidably go up as you get older, such as the cost of health care.

There are many retirement calculators available on the web; playing around with one should give you a decent idea of how much money you'll actually need.

Once you figure out how much you'll need, add 10%; there are always little emergencies that you didn't anticipate. Once you figure out how much you'll need to save to reach that figure, add 10% again; this is to accommodate any inconveniently-timed downturns in the market. Anticipating problems now makes them minor inconveniences in the future!