You’ve probably heard that you must have at least one million dollars to be able to retire comfortably. The idea that you need to have a certain amount of money to retire is frustrating to many people. Retirement planning doesn’t fit all, as the required amount depends on a variety of factors. We’ll explore different retirement scenarios and income levels to determine your retirement saving.
Elon Dusk and Elona dusk are our fictional couple, both 65-year-old. The couple is considering retiring and wants to know how much money they will need in order to achieve different income goals.
$5,000 per Month:
Social Security would pay them a total of $4,443 a month once they reach 65 years old. The shortfall is $557 per monthly or $6700 annually.
If they assume a withdrawal rate of 5%, then they will need to have a portfolio worth approximately $134,000 in order to cover this gap. If they wait until they reach full retirement age (66 years and 8 months), then they can rely solely on Social Security.
2. $10,000 per Month:
Let’s assume Elon and Elona wish to retire at age 65. Their Social Security benefits would be $4,065 after taxes. This leaves a shortfall of $5,935 per month or $71,220 annually. After taxes, their Social Security benefit at 65 years old would be $4 065; this leaves a monthly shortfall of $71,220 or $5 935.
If they assumed the same withdrawal rate of 5%, then they would require a portfolio size of around $1,583,000 in order to close the gap. This required portfolio would be reduced to approximately $1,447,000 if they wait until full retirement.
3. $15,000 per Month:
If Elona and Elona want to earn $15,000 per month, then their Social Security Benefits at 65 years old would be $3,877, after tax. The shortfall is $11,123 or $133 476 per year.
If they had a 5% rate of withdrawal and an effective tax rate of 15%, their portfolio would have to be approximately $3.140.000 in order to pay for all expenses. This portfolio would be reduced to approximately $3,000,000 if they wait until full retirement.
This article shows that the amount of money you need to save for retirement can be affected by factors like your Social Security benefit, your age at retirement and your desired income. Not just about hitting a million dollar mark. Your expenses, non-portfolio sources of income, and tax status all have a major impact on your readiness for retirement.
Plan for the different phases of retirement. This includes the years with high activity, low activity, and no-activity.
Understanding how to maximize Social Security can make a huge difference in your retirement planning. Your portfolio can be less burdened by making small adjustments to your claim strategy.
Retirement is not a one-dimensional journey. The path to retirement is a complicated interplay between your income, expenses, taxes, and other factors. Instead of focusing on the million dollar benchmark, consult a financial adviser to develop a customized retirement plan that is tailored to your specific circumstances and goals. The right retirement number is one that allows you to enjoy your golden age comfortably.
