I know that each individual has just slightly different retirement needs, but what is a good amount to shoot for if you are a rather young adult. I am in my early 300 and really have no clue how much retirement money will be enough. I know that I will get a little from Social Security, but I am clueless of what I should aim for in savings to be comfortable.
A good general rule of thumb is to take whatever yearly amount you think you'll want or need to live on when retired and multiply that times 25. Don't forget to factor in an inflation rate of at least a couple of % a year just to be on the safe side. And don't forget about taxes that will come out when you start drawing on regular (pretax, tax-deferred) IRAs, any annuities, etc. If you think you'll need $5k a month or $60k a year to live on in 30 years or whenever, you should plan to have about a million and a half set aside to be able to draw that amount on more or less indefinitely. You might be able to get by with a smaller nestegg, but if you're pulling more than 4-5% a year out of an account, you are more likely to run out of money sooner or later statistically speaking. And if you're expecting more than low double digit returns consistently over the next 30 years during your accumulation phase, you're probably not being realistic. If you start putting $200 a week into your 401k for the next 30 years, it will be worth over $1.7 mil in 30 years if you average 10% a year - minus any fees. If you have a Roth 401k option (after tax dollars), that will grow tax free instead of tax-deferred like the regular (pretax) 401k does.
This is the figure I've always heard, too... sometimes 20 years is suggested instead of 25, but it's still a good rule of thumb. I think that forgetting about taxes is probably one of the biggest blunders people make when starting (or continuing) to plan for retirement. And I know that "25 years" thing is *really* scary to someone just starting out. I actually couldn't face it when we started, so I focused on "10 years" at first. (Yeah, I'm a wimp!)
I'd second everything that's been said so far. You have to know how much you can realistically get by on for 20 or more years, and some people definitely need to downsize from their current lifestyle in order to get enough for retirement. I know people that could retire on less than $1.0 million and get by just fine, but I know others that will need closer to $2.0 million in savings to retire comfortably.
I think more than a set amount of money, I want to know for sure that I have a place to live outright, like a home or an apartment, for people that live in cities like New York and then I will do what needs to be done to cover the property tax. It sounds crazy, but I think even in dire straits, you can get people that are more willing to help you with food than shelter.
I would not need much considering I had a paid home in an ideal location. Having that my expenses would be minimal because I know how to live in a quite frugal way.
Just to clarify, the 25 multiple is not "25 years", but rather the number yields a 4% annual $ amount to be taken out each year from your nestegg that will likely allow you to withdraw a certain amount safely and consistently from a nestegg of a certain amount. This will likely allow you to maintain your principal indefinitely, so that you likely never run out of money no matter how long you live, and you likely can leave the entire principal of the nestegg to your heirs when you die.
I will tell you that one thing I like to read your post in this forum for is because you really take the time to help out and give thorough answers and that is something that I really admire. Keep up the good work.
Thank you very much for the complement, teastocks. I'm glad to help out and be able to share my experiences and training in pointing people in the right directions on such important subjects as these.
This is a great question that people need to think about when planning for retirement. I didn't know about this when I started planning for my retirement. They just told us to get the 401K and start contributing. They really didn't get us into the mindset of things about how need will be met in the future.
