Next Steps To Consider
This information is intended to be educational and is not tailored to the investment needs of any specific investor.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
Investing involves risk, including risk of loss.
Target Date Funds are an asset mix of stocks, bonds and other investments that automatically becomes more conservative as the fund approaches its target retirement date and beyond. Principal invested is not guaranteed.
Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.
With respect to federal taxation only. Contributions, investment earnings, and distributions may or may not be subject to state taxation.
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Sudipto Basu Of Onecentatatimecom
Sudipto is the Founder of One Cent at a Time, where he blogs about personal finance and productivity. Hes an advocate of taking low-interest personal loans to pay off high-interest credit card balances to escape debt faster.
How much do you need for retirement and why?
I need at least $1 million to retire. My mortgage will be paid off by the time I retire 23 years from now. My sons college would by fully paid, too. So Ill have nothing else to pay for other than food, health, entertainment and travel for two peopleonly $24,000 in todays money.
Sudipto used the 4% rule on a $1 million retirement to come up with a withdrawal rate of $40,000 a year. He added,
I didnt factor in social security income because thats uncertain. Any income from Social Security will just be used for more travel and charity.
What conservative investment option can you recommend to a friend whos afraid of risk?
A CD ladder is the best option in my opinion. It has the least risk and its almost as good as annuities in terms of return. Id also recommend investing in bonds, as it has a lower risk compared to stocks and ETFs.
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Bo Liu Of Futureproof Mdcom
Bo is a resident physician and personal finance enthusiast who loves writing about financial topics relevant to young medical professionals like himself. He also writes about student loans, investing, and loan management at the Future Proof Detour section of his blog.
How much do you need for retirement and why?
My goal is $5 million in todays dollars. That will give me an annual income of $200,000 using the 4% rule. But Im pretty frugal so I can probably live on 3% withdrawal rate or $150,000 annually.
What conservative investment option can you recommend to a friend whos afraid of risk?
If you cant tolerate any risk, put your money in an FDIC insured high yield savings account or CD.
But with proper financial education, Bo believes people can choose an optimal investment option that accounts for their risk tolerance.
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Results For Retiring With 15 Million Dollars
In this example, as you can see, youd be left with over $400,000 after 30 years of withdrawing the $3,750 monthly amount and beginning with 1.5 million to retire.
Thats good since you may live longer than 30 years after retirement.
As noted, your own numbers need to be entered into the Run Out Calculator since your monthly spending, taxes and expected return numbers will be based on your own situation.
Brad Kingsley Of Maximizeyourmoneycom
Brad helps people create a plan to get out of debt, pay for college, or live a comfortable retirement. He also provides personal finance coaching on his blog.
How much do you need for retirement and why?
I know exactly how much I need to retire, because I hit that number and retired early. My retirement magic number was $2.5 million.
Brad is an avid budgeter, so he has a good grasp of his spending and cash flow. He also didnt follow the popular 4% rule.
He explains, Based on studies of historical returns, I decided that a 4% withdrawal rate was too risky for someone who wants to retire early. A 4% withdrawal rate has a good chance of lasting 30 years according to analysis, but its chances of lasting 50 years arent good enough for me.
The withdrawal rate he set is 3.5%. According to his calculations, his retirement funds have an 83% chance of lasting until hes 107. And that likelihood is going to increase once he starts claiming his social security benefits.
What conservative investment option can you recommend to a friend whos afraid of risk?
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What Are Your Retirement Lifestyle Expectations
Ultimately, how much money you’ll need for your own retirement is very personal, and will depend on your own situation, wants, needs and lifestyle expectations. It may help to factor in your day-to-day spending habits, your recreational activities and hobbies and whether youll be entering retirement debt-free. The following figures are a guide taken from the ASFA retirement standard.4
Latest Passive Income Streams For Retirement
Below is a snapshot of my passive income streams. Private real estate funds is my favorite passive income stream as we come out of the pandemic. Im focused on investing in the heartland of America where valuations are cheaper and net rental yields are higher. Further, inflation is a nice tailwind for inflation.
This detailed passive income portfolio has taken about 20 years to build and is worth well over $5 million. Yet, its still not considered enough due to healthcare costs. Ive also got ever rising tuition, and elderly parents I need to take care of soon.
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Here Are Some Additional Items To Keep In Mind:
- If you are regularly spending above the rate indicated by the 75% confidence level , we suggest spending less.
- If you’re subject to required minimum distributions, consider those as part of your withdrawal amount.
- Be sure to factor in Social Security, a pension, annuity income, or other non-portfolio income when determining your annual spending. This analysis estimates the amount you can withdraw from your investable portfolio based on your time horizon and desired confidence, not total spending using all sources of income. For example, if you need $50,000 annually but receive $10,000 from Social Security, you don’t need to withdraw the whole $50,000 from your portfoliojust the $40,000 difference.
- Rather than just interest and dividends, a balanced portfolio should also generate capital gains. We suggest using all sources of portfolio income to support spending. Investing primarily for interest and dividends may inadvertently skew your portfolio away from your desired asset allocation, and may not deliver the combination of stability and growth required to help your portfolio last.
- The projections above and spending rates are before asset management fees, if any, or taxes. Pay those from the gross amount after taking withdrawals.
Financial Planners See This All The Time: You’ve Saved Enough To Retire Comfortably Yet You’re Worried About Your Money Running Out And Want More Its Time To Ask Yourself How Much Is Enough Maybe Less Than You Think
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Nearly six out of 10 Americans fear running out of money more than death, according to a survey by AIG Life & Retirement. Weve seen this play out with our own clients. Many have saved enough money to last 30-40 years, yet some still pinch pennies as if they are going bankrupt.
One particular couple comes to mind, a retired doctor and teacher. Their income from a pension and Social Security is nearly $100,000 annually about the same amount as their annual expenses. They dont touch their investment account of approximately $2 million yet they still worry they are spending more than they should. For example, just before the pandemic, they asked if they could afford to take a Mediterranean cruise that would cost around $10,000. Of course, they could.
If the past couple of years have taught us anything, its how precious life is. In the past year alone, weve lost clients to cancer, unexpected medical complications, heart attack and COVID-19. The pandemic gave all of us a wake-up call to ask what is really important in life. When it comes to money, the question is, how much is enough? While the answer is different for each of us, the facts show it may be less than you think.
Here are our recommendations to create peace of mind that you have enough:
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Multiples Of Your Annual Income
Fidelity recommends saving a certain percentage of your salary based on your age and income. It recommends this strategy because your age has a huge impact on the amount you need to save for retirement.
You start off at a smaller percentage when youre younger so by the time you reach retirement age, compound interest will have done its work, helping you achieve a comfortable retirement.
The brokerage suggests you start by saving at least 15% of your gross salary when youre 25 and investing heavily in more aggressive assets like stocks. By the time youre 30, you should have saved at least 50% of your salary. Of course, you could be more aggressive with your 401 savings goals.
Retirement Goals By Age
Heres a table that shows an estimate of how much of your annual income you should budget for retirement by age.
Choose A Withdrawal Rate Based On Your Time Horizon Allocation And Confidence Level
CSIA updates its return estimates annually, and withdrawal rates are updated accordingly. See the disclosures below for a summary of the Conservative, Moderately Conservative, Moderate, and Moderately Aggressive asset allocations. The Moderately Aggressive allocation is not our suggested asset allocation for any of the time horizons we use in the example. The example is hypothetical and provided for illustrative purposes only. It is not intended to represent a specific investment product and the example does not reflect the effects of taxes or fees. Past performance is no guarantee of future results.
Again, these spending rates assume that you will follow that spending rule throughout the rest of your retirement and not make future changes in your spending plan. In reality, we suggest you review your spending rate at least annually.
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Lance Cothern Of Moneymanifestocom
Lance is a licensed CPA who writes about spending smarter, earning more, and investing money. He and his wife also paid off more than $80,000 in student loans in 3 years.
How much do you need for retirement and why?
Lance says he and his wife need $1.4 million in todays dollars to retire. Heres how he came up with that number.
Our target is $60,000 per year in retirement income. We also included a conservative estimate of $1,500 per month in Social Security income in todays dollars, even after future changes are made, which resulted to a need of $42,000 per year in other income. We multiplied that number by 33.33 to get the total amount we need based on a more conservative 3% withdrawal rate.
What conservative investment option can you recommend to a friend whos afraid of risk?
Lances conservative option isnt an investment per se, but the savings are worth it.
If I had a friend scared of risk, Id recommend they pay their mortgage down. The rate of return is guaranteed, because youll no longer be paying interest on the additional principal youve paid off.
Reassess How Much Is Enough
At age 50, you may have set a goal of retiring with $3 million in investments and worked to achieve that amount. However, as you approach retirement, your priorities may have changed. And even if you havent met your $3 million goal you set for yourself years ago, you might find that the amount in the bank may easily fund your retirement.
We certainly understand that some people enjoy what they do working well into their 70s can give them purpose. But we often encounter those who continue to put more money at risk with their investments, endlessly chasing after more.
It is not that uncommon to come across individuals who have saved enough to live a comfortable lifestyle for the rest of their lives, even if they kept all their portfolio in cash. While we would never recommend this ultraconservative investment strategy, some in this situation will still invest very aggressively in stocks even though a lower-risk, more stable and secure portfolio would be more than enough. Why risk anything to gain something you dont need?
So, how would you answer the question How Much Is Enough? If you are seeking a life with fewer financial burdens and stress, one focused on spending time with those you love and doing things you enjoy, then figuring this out on your own or with the help of a financial adviser could change your life. For many Americans, the amount of money needed to comfortably retire may be less than you think.
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Make Savings A Priority
Keep your eye on your dreams. Do the best you can to get to at least 15%. Of course, it may not be possible to hit that target every year. You may have more pressing financial demandschildren, parents, a leaky roof, a lost job, or other needs. But try not to forget about your futuremake your retirement a priority too.
$10 Million Retirement Lifestyle
Assume a married couple wants to retire at age 50 with $10M portfolio. For simplicity, we’ll assume their asset allocation is a 60/40 mix of US stocks and bonds. The illustration uses the weighted annualized return and volatility figures between 2007-2021 to estimate portfolio growth and risk .¹ Inflation is 2.2% and their life expectancy is age 90. All tax implications have intentionally been excluded from the analysis.
Running a Monte Carlo simulation with a success rate of at least 80%, we can back into the Morgan’s maximum annual ‘safe’ withdrawal rate: $475,000.²
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Chad Carson Of Coachcarsoncom
Chad is an experienced real estate investor, father of two kids, traveler, and writer for other personal finance websites . His website is mostly about real estate investing, but he also writes about business management and personal development.
How much do you need for retirement and why?
For a simple retirement, I need a minimum of $3000 a month or $36,000 a year. This covers the basic expenses of my small family of four.
This income can translate to different numbers depending on where you invest. But a $600,000 equity invested in rental properties can easily produce this monthly income, assuming I purchase properties with a 6% return on investment.
Chad also emphasizes that because the investments are in real estate, he doesnt need to worry about depreciating capital like other paper assets. If he buys quality properties in good locations, the rental rates will likely keep up with inflation.
What conservative investment option can you recommend to a friend whos afraid of risk?
I recommend a small portfolio of five to 10 fully paid and clear rental properties.
I think hes one of the few to mention rental properties as a conservative investment option, so its interesting to read his reason for this.
The debt free properties will produce a consistent income. And because theyre fully-paid, you dont have to worry about another real estate bubble or depression. You can just reduce the rental rates. The small number of properties also makes it reasonable to manage.
$5 Million Should Be Enough To Retire Happy And Free
If youve been able to accumulate $5 million, congratulations! You should be able to retire with little-to-no financial concerns. Go ahead and enjoy life to the maximum today! Youre ahead of 97% of the American population who have an average of ~$200,000 save up for retirement.
If youre still on your journey to financial independence, accumulating $5 million worth of investable assets is a worthwhile goal. Just know that inflation really does eat into your moneys purchasing power. With low interest rates, maybe inflation will pick up and help with income generation. But the future is not certain.
If you are fortunate to be able to accumulate millions of dollars, then I highly recommend you track your finances like a hawk. Sign up for Personal Capital, the webs #1 free wealth management tool. Ive been using this free tool since 2012 and have seen my net worth more than 5X since.
In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator. It pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms.
Your goal is to have the calculator spit out a high probability percentage and show you what your Projected and Planned retirement income and spend figure are.
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Why Use An Annuity
Annuities are the only retirement plan in the United States that provides a guaranteed income for a lifetime, even if the plan runs out of money. As a result, the annuity is a money management tool in retirement, taking all the guesswork in budgeting your day-to-day expenses. By utilizing this financial plan, a retiree will never have to worry about running out of money.
