Many people look forward to retirement. You can do all the things that you never had time to do because of work and other obligations.
Retirement is not as easy as sitting by the pool or walking on the beach. It can take years of planning and saving to ensure that you can have a stable and secure life after retirement. It’s never too late to start withdrawing money, even a little. You’ll appreciate it later.
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How much money do you need to retire?
There is no specific, set-in-stone number at which anyone should retire; it all depends on the person.
When planning for retirement, there are several questions you should ask to determine how much money is enough for you, according to Shweta Lawwande, senior advisor at Francis Financial in New York City, which offers financial planning, wealth management and other services.
These include: When do you plan to go? What is your current income compared to what you want it to be in retirement? What are you currently doing to save for retirement?
“For anyone who is thinking (how much do you want to retire), especially those who are approaching that retirement age, I cannot recommend working with a financial advisor to create a plan to save money and spend during retirement,” said Lawande.
But if you want a quick and solid idea, there is a good estimate of how much you may need, such as assuming you will need 80% of your pre-retirement income, Lawwande said. Pre-retirement is defined as the time when you think you want to retire and choose your retirement date.
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Deciding how much you will need for retirement
Since the amount of retirement income you’ll need varies from person to person, having an understanding of your current finances in relation to what you want to do in retirement is important, Lawwande said.
In addition, you need to consider the money you will need to support loved ones and family, as well as medical expenses.
Especially when it comes to medical expenses, life can be unpredictable, so it is important to consider the costs of procedures or drugs, even if you are in good health.
If you plan to travel, entertain or do an expensive hobby, you may need to increase your savings “flexible, discretionary income,” according to Merrill.
Another guideline to keep in mind is the 4% rule.which allows a retiree to have a withdrawal rate of 4% from their financial income each year for 30 years, adjusting for inflation over time.
Using this law, people can see if the money they invest is suitable for them and if this amount can support them in any year of retirement, Lawwande said.
When should I start saving for retirement?
To save more for retirement, you should start as early as possible. If you have a full-time job, start thinking about saving.
Lawwande said if you are earning money, start thinking about retirement by saving 10%, then adjust from there. On average, Fidelity estimates that you should aim to save at least 15% of your pre-tax income each year, which includes any employer match and assuming you’re saving between the ages of 25 and 67.
“It is difficult because retirement feels far away for such young people,” said Lawende. “When you have that number of years on your side for your money to grow that way, it’s just absolutely worth it.”
While saving for retirement is important, investing for retirement is also important, added Lawwande.
Investing allows your money to grow, either through interest or appreciation in stocks and shares, over time. You will be able to contribute less money to meet your goal as the initial investment allows you to benefit from the compound interest.
Compound interest, which Albert Einstein called “the most powerful force in the world,” is when you earn interest on interest. For example, if you have $100 earning 5% interest per year, you will have $105 the first year and $110.25 the second. It seems like a small difference but it adds up, that’s why if someone gives you $1 million or a penny doubles every day for 30 days, you have to take the penny. By day 30, that penny will be worth several million dollars.
“Just think about the investments,” said Lawende. “Let that work in your favor, especially if you have time on your side, before retirement and beyond.”