How Much Money Will It Take For You To Retire? Here’s A Quick Way To Calculate Your Freedom Number

Retirement. We think about it almost every day. Periodically, we ask ourselves all the hard questions. Are we doing enough to plan for it? How can we make sure our money doesn’t expire before we do? And, most importantly, how much money will it take to retire?

Truth be told, how much money you’ll need in retirement isn’t a one-size-fits-all scenario. Everyone has a different number. And to calculate it in the safest, most efficient, manner you need to base it on your yearly expenses.

When it comes to wealth, it really is all a matter of what you keep. You can make $250,000 a year but if you spend $230,000 then you are no wealthier than a person who makes $60,000 and spends $40,000. Sure, you’ll have a lot of “things”, but your path to retirement is going to be much longer than the person who is saving 33% of their yearly income.

That is why we use annual expenses as the benchmark in calculating our freedom number.

How Much Money Will It Take For You To Retire? 

There is a simple way to calculate your retirement number. However, there are a number of other factors you should take into account prior to making this calculation. So before we get to the equation, let’s consider the whole picture. 

Things That Can Raise Your Retirement Expenses

When calculating how much money you need for retirement, there are several factors to consider. Here are some things to keep in mind:

Lifestyle: Consider the type of lifestyle you want to maintain during retirement. Will you be traveling, eating out, or pursuing expensive hobbies like golf? 

Inflation: Account for the impact of inflation on the cost of living over time. This means considering how much your expenses may increase during your retirement years.

Life expectancy: While it’s impossible to predict how long you will live, it’s important to consider your family’s life expectancy and your own health history to estimate how many years you might need to plan for.

Retirement age: The age at which you choose to retire will impact how much you need to save. The earlier you retire, the more money you will need to support yourself for a longer period of time.

Healthcare: Medical expenses can be a significant cost during retirement. Consider the cost of health insurance, long-term care, and other medical expenses.

Social Security: Determine how much you can expect to receive from Social Security and factor that into your calculations.

Savings and investments: Determine how much you have saved and invested for retirement and whether it will be enough to cover your expenses. 

Retirement Number Calculation

Now that you have hopefully determined your annual expenses in retirement, let’s dive into how easy it is to calculate your personal retirement number

Annual Expenses รท 0.03 = Retirement number

Spend $100,000 per year? Based on the above calculation, you will need roughly $3.33 million to retire comfortably. And by that we mean you should be able to maintain your exact lifestyle. And you’ll do this by safely withdrawing 3-4% of your retirement portfolio every year without worrying if you will run out of money.

If you need more peace of mind and emergency buffer, you could always delay your retirement for a year or two. Or take on a side hustle in retirement. Making just an extra $1,000 per month from a side hustle could make a world of difference.

Final Thoughts

Remember, retirement is supposed to be a fun and mostly stress free time in your life. Proper planning and understanding what you really need to achieve that will determine how successful and worry-free your retirement actually is. 

C. James

C. James is the managing editor at Wealth Gang. He has a degree in finance and a passion for creating passive income streams and wealth management.