When it comes to your retirement income needs, coming up with the “number” of what you need for retirement is paramount. This figure was meant to be some guess at how much you’d need each year to cover your expenses.
We’re going to revisit that topic. And as you can probably guess, there’s a good reason to do so. After an exhausting discussion of safe withdrawal rates, one thing should be clear to you:
No matter which one you choose for your plan, every dollar you think you will need for retirement will be an amplification of what you will need to plan to save in your nest egg.
Think back to our simple retirement equation. The math is easy to see! Take the 4 percent rule for example:
Every $10,000 extra of retirement income that you think you will need will cost you the time and energy to save up an extra $10,000 / 0.04 = $250,000 in your nest egg.
So why not be strategic? Let’s turn this concept around and use it our advantage!
For every $10,000 of retirement income that you can afford to do without, that’s $250,000 less that you need to save in your nest egg.
It’s true! We’ve been generically using $50,000 in every example so far as our target retirement income. But could you be just as happy with $45,000 or $40,000? What about even less?
Crunch the numbers. A retirement income target of $40,000 using the 4 percent rule drops our nest egg savings target down from $1,250,000 to $1,000,000. Considering how many years of saving that could knock off of your plan, I’d say it’s worth looking into.
Addressing a crucial decision that lies before you: How much money do you think you will need for retirement?
Though initially, you might have your doubts about being able to live on less, it might be beneficial to know that this concept of reducing your expenses is the cornerstone of many successful early retirement strategies. Have a look for yourself