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

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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.

Related: How Mismanaging Your Portfolio Can Cost You $600,000 In The Long Run

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.

Here Is A Quick And Easy Way To Calculate How Much Money Will It Take For You To Retire

Annual Expenses ÷ 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.

Of course there are other factors to consider, like costs of unplanned emergencies or healthcare. 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.

Before you can start to even think about calculating this number, you first need to determine how much money you’re actually spending. After that, you can begin to calculate your personal freedom number.

Author
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.