How Much Money Do I Need to Retire? What’s My Magic Number?

When you ask yourself, “How much money do I need to retire,” wouldn’t it be great to know exactly how much money you need to  be comfortable for the rest of your days? Is it possible to calculate that “magic number?” Does it even exist?

That “magic number” is difficult to come up with and is unique for each individual, according to Chris Hardy, a certified financial planner and enrolled agent from Suwanee, Georgia.

Quite simply, a person should have more income than expenses, Hardy says. A pre-retiree can achieve that by paying off all debts—including any mortgages—before he or she retires. Then, the pre-retiree should add up all of his or her monthly obligations, like utilities, travel expenses, insurance payments, taxes and groceries, plus any amount that he or she would like to have on the side as “fun money.” All together, this represents a pre-retiree’s “must-have” income amount.

Then, the pre-retiree should add up all of his or her income sources beyond retirement funds, such as pensions and rental income. Now, all of the pre-retiree’s expenses can be subtracted from all of his or her income. If there is a shortfall, that number can be divided by 4% to give an asset amount that is needed to find “the magic number,” Hardy says.

For example, if all of a pre-retiree’s monthly obligations add up to $5,500 per month, and his or her income sources will only bring in $3,600 per month, this means he or she will have an annual shortfall of $22,800. This number can then be divided by 4% to get to $570,000—the “magic number” this pre-retiree will need to fund a retirement that could last as many as 30 years.

It is important to keep in mind that there are many factors that could change a retiree’s financial status during retirement, including market volatility, health issues and higher taxes, Hardy notes.

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