Determining how much to save for retirement is time-consuming and fraught with uncertainty. However, not determining how much to save for retirement properly might result in monetary problems throughout your retirement years, which includes not having sufficient retirement funds. It is especially important to correctly figure out how much to save for retirement if you plan to retire early even though you can never remove the uncertainty that comes with planning a 30-year retirement.
If you plan to retire early, you then won't be eligible for public retirement assistance, such as Medicare and Social Security during the first several years. Thus, it's crucial that you determine how much to save for retirement with highest precision. Furthermore, in the event you retire before age 59 ½, you won't have the ability to access any tax-deferred retirement plans that you might have without incurring penalties (unless you qualify for one of the penalty exemptions). Therefore, it is important to make investments that you will have access to prior to you reaching age 59 ½, such as taxable investment options and Roth IRA accounts. Whilst you cannot touch the interest without incurring a penalty on a Roth IRA if you retire early, you are able to withdraw the contribution amounts at any time.
Thus, how do you decide how much to save for retirement in the event you plan to retire early? That all depends on the age at which you want to retire, your life expectancy, the forecasted inflation rate, your tax scenario, and a myriad of other elements. Nevertheless, assuming a retirement age of 50, here are some ball park numbers that you may use to get a sense of how much to save for retirement (starting at age 23, assuming money compounds at 6%):
- $1,250 monthly in savings = $1 million at retirement
- $2,500 per month in savings = $2 million at retirement
- $3,750 monthly in savings = $3 million at retirement
Once more, these are just ballpark numbers and, depending on your current age and monetary status, the required monthly retirement savings may be in the nosebleed seats of the ballpark. To put it differently, it may be impossible to accomplish the savings required. In most cases, small adjustments in your planned early retirement can make a big difference. By moving the retirement age from say age 50 to 53, not only do you have an extra 3 years of savings to add to your retirement nest egg, your retirement account compounds for an additional 3 years. For example, $500,000 at age 50 becomes almost $600,000 by age 53 (at 6%).
Try utilizing a retirement savings calculator to check how sensitive changes are in determining how much to save for retirement. Tinker with different retirement ages that you may wish to accomplish and utilize realistic monetary numbers based on your financial status. Change the assumptions for the compounding rate, inflation rate, tax rate, etc. Doing this will help you get a considerably clearer picture when deciding just how much to save for retirement. However, you should also strongly consider using retirement software that you pay for (that is likely to provide more accurate outcomes) and/or consulting a retirement consultant.
Essentially, knowing how much to save for retirement is definitely an issue which you are going to have to be personally involved in. Whilst Internet content articles, guides, online calculators, and retirement software programs may all help you decide how much to save for retirement, personal choices and the advice of a financial professional ought to be a part of the equation.