April 29, 2021

How Much Money You NEED to Retire, Ep #43

18 minutes

When should I retire? How much money do I need? Can I afford to retire?

Are these questions rolling through your mind? In this episode of Retirement Made Easy, I share some statistics about retirement savings and what various experts think you need. I share some resources to help you determine where you should be, and what I think you should base your retirement goals on. Check it out!

You will want to hear this episode if you are interested in...

[3:25] The Retire Inspired Quotient
[5:50] Fidelity’s rule of thumb for retirement
[8:10] The average 401k balance
[11:38] An example where the rule of thumb doesn’t fit
[13:33] What you need depends on retirement goals

The Retire Inspired Quotient

Dave Ramsey has a YouTube video entitled, “How Do I Know When I Have Enough Money to Retire?” In this video, Dave does a good job explaining that retirement isn’t one-size-fits-all. What you want in retirement is unique to you.

What lifestyle do you want in retirement? Do you have goals to travel and see the world? You might need a larger nest egg. Rules of thumb aren’t for everyone but are a great place to start. Dave Ramsey’s “Retire Inspired Quotient” helps you determine the number you’ll need to have saved to retire comfortably. The RIQ tool is free and helps you get off to a great start.

Fidelity’s rule of thumb

Fidelity’s rule of thumb is that by age 67, you need to have saved 10x your annual income. If you make $50,000 a year, you need to have $500,000 saved to retire. You need to have 8x your income saved by age 60. This sounds a lot easier than the $1 million people think they must use as the benchmark. But the problem is that you can’t always choose when to retire. Your health can dictate when to retire. So can job availability. There is certainly age discrimination in this country, and opportunities can be slim pickings.

The average 401k balance by age

NerdWallet looked at Fidelity’s investment report when they wrote their article, The Average 401k Balance by Age. According to this article, in 2018, the average balance was $103,700. The median was just $24,500. People are very behind on saving for retirement. Looking at the age band, of ages 60–69, the average 401k balance was $195,500 and the median was only $62,000.

The Bureau of Labor Statistics published a study in 2020 that said the average American annual earnings was $51,168. If a 60-year-old needs $400,000, but the average person doesn’t have that much saved—it’s a problem for a lot of people. Do you have money saved elsewhere? Were there other accounts not included in the total?

Missouri teachers break the mold

Missouri public school teachers have one of the best pension systems in the country. Their pension makes up 70%+ of their salary when they were teaching. Teachers don’t typically have 401ks, but they have 403B plans.

Fidelity’s retirement formula wouldn’t work for a teacher because they depend on a pension—not a 401k. They contribute 14.5% of their salary toward their pension plan. Other workers in the public sector—like firefighters and police officers—will have a nice pension they’ve been paying into for years to use in retirement.

You might not need 10x your salary, you might need 12–14x your salary. The retirement of your dreams will dictate what you need to retire. Listen to the whole episode for my full thoughts on when you can retire.

Resources & People Mentioned