What is a Good Amount to Retire With?

When you are trying to determine a good amount to retire with, there are many factors that you will have to consider. Assuming that retirement in your case means to stop working completely, below are the factors to consider:

  • Your expenses at the time you retire
  • Inflation that impacts your expense up to retirement, and inflation during retirement
  • Your rate of return on your investments
  • The total value of your investments
  • How long you live
  • Additional sources of incomes
Let’s say $100/day is your expenses ($36500 a year) when you want to retire (so this amount would have already been adjusted for inflation). Let’s say your total value of return producing investments is $200,000 (cannot include equity in your home unless you want to get into a reverse mortgage but that can come with a set of different problems).

To stop working and live on expenses of $36,500 a year on $200,000 definitely, with ever touching your principal (so the $200k never goes down) you will need to achieve a 13.25% annual return on your investment, not adjusted for inflation (18.25% + inflation... maybe 3% = 18.79% the second year) and this number will grow each year with inflation as your principal is not going up). While achieving such a high rate of return is not unthinkable, it is on the high end and quite unlikely (unless you are really good friends with Warren Buffet), when savings accounts are paying roughly 4% and the stock market is poised to deliver on average 8-12% returns on an annual basis.

So let’s get back into the numbers and assume that you will only need the money for 10 years, you are going to retire today and there will be no inflation for the next 10 years, and that you are willing to spend your entire principle amount and you can get an average return of 8% on your money..You need roughly $265,000 to take a draw of $36,500 a year for the next 10 years (so the $200k is still a bit short of your goal). The amount of $200k sure doesn’t seem much now to retire on does it? Once you start factoring in inflation, years until you retire and lengthening the time you will be in retirement and drawing down your money the numbers will start to get worse and worse, and chances are you will need like $500,000 or so to really retire comfortably. Source:infobarrel.com