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How Much Do I Need To Retire? Everything You Know is Wrong

Retirement SavingsWe are not planning on having a set amount of money in a retirement account when we turn 61, the current average retirement age. This is the status quo for middle class Americans and it is time that people understand the issues with this plan.

When planning for traditional retirement, there are questions that we all have to ask. The most important one is figure out how much money you will need per year to live. The average American household spent $51,442 in 2012, so lets call it a smooth $50,000 a year. Is this more than most people will spend in their retirement? Sure, but we don’t think retirement means you have to stop living. To the contrary, when I’m retired I want to travel the world, drive a nice car and spoil my grand-kids.

How Long Will You Live?

So how much needs to be in a retirement account to spend $50,000 a year? Well this is the million-dollar question because really the question is, how long are you going to live? 10 years? 20 years? What if you make it to 100 years old?

Lets say I make it to the average life expectancy age of 78 (for Americans). That is 17 years of retirement living, so how much would I need in my retirement account to make it 17 years? Assuming Annual Inflation of 3% and Annual Return on Investments 8%, the retirement money required is $560,000.

Seem achievable? I suppose I do too. One important thing to keep in mind is that you need to have $560,000 in AFTER TAX money in order to cover expenses. In order to have that much money, you would have to begin saving at age 25, put $4,500 a year away, and earn an 8% yearly return. The news is better if I put this money into a Roth IRA, because I would have a little over $900,000 to work with since the tax has already been paid, but that is another subject.

Oh yeah, I better not live past 78 or I’ll will be broke. And hopefully my retirement isn’t around the time of a stock market collapse.

How Much do I Need To Retire: The Answer

You are more then welcome to rip apart my analysis. Specifically, what if my average annual returns actually end up being higher than 8%? Well that would be great, but the problem is that I have no control. It is all just a big guess.  The solution is passive income that will last a lifetime, not a certain amount of money saved up.

Buy And Hold Real Estate Is The Solution

I want to take control of my retirement and guarantee myself income. I think the best way is through real estate.

One Comment

  1. Very interesting. I stumbled across this article while trying to figure out if the amount I have in my 401K is going to be enough to last me through retirement. I am certainly concerned that it will not, who knows though. I think trying to find passive cash flow is a great retirement concept.

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