Ask Dave Ramsey how much money do you need to retire comfortably, and you’ll probably get the same answer he has given many times before: It depends.
That might not seem helpful at all, but of course there’s more to it. Keep reading to find out how to get a more specific and personalized answer.
Summary of the Big Takeaways About How Much You Need to Retire…
- There’s no single amount that people need to retire comfortably, and it’s important to consider the lifestyle you want in retirement versus what you need to get by.
- The earlier you calculate what you have (and what you want), the better you can plan for the retirement that you want.
- You can reliably project your retirement needs using the NewRetirement Planner. NewRetirement is like having an advisor at your fingertips. It is maybe even better than a 1:1 meeting with Dave Ramsey himself.
Why Dave Ramsey Has a Hard Time Answering the Question of How Much You Need
Just as no two people live the same lifestyle with the same income, no two people will retire in exactly the same way. One couple might be perfectly comfortable, says Dave in his answer to one caller, with a retirement annual income of only $20,000. However, someone else might just as easily need triple that.
What’s the difference? It’s all about what you want. Below is how to sort it out and get started on your path toward retiring with the lifestyle you want.
Determine the Retirement Lifestyle You Need and Want
To figure out how much money do you need to retire comfortably, you need to project how much you will spend on your retirement needs and wants.
Needs: Do you own your home free and clear and do you have zero debt? Chances are you’ll need a lot less annual retirement income than someone who still has a mortgage and debt to pay off. What will you need to spend money on?
Wants: Do you want to travel the world, dine out regularly, buy a new home in a retirement community (or one at the beach) and feel free to buy what you want, when you want it? What will you want to spend money on in retirement?
Each of these questions, and more, play a role in determining how much income you will need to retire comfortably.
The trick is to get really detailed about your future and determine exactly what you need to retire comfortably.
Get a Snapshot of Where You Are Now
In addition to predicting your retirement spending, to determine how much you need to retire comfortably, you will want to figure out your current financial situation – how much you earn, how much you save, how much you have invested and more.
A detailed and comprehensive retirement calculator makes it easy to calculate what you have. The NewRetirement tool puts you in control. When you see where you are now, you will also see where you can make adjustments to save and invest more, retire sooner, retire later, cut expenses, among many other choices.
Projecting how your current assets will hopefully grow to and through retirement is critically important. The NewRetirement Planner lets you see your projected net worth for every year of your life.
Ramsey also recommends using an investment calculator. When you invest for the long haul, a calculator lets you reasonably predict what your investment will be worth in a set number of years. If that seems hard to believe, remember that with all of its ups and downs, you can still count on an average rate of return if you leave investments alone to grow. (This functionality is included in the NewRetirement Planner.)
Beyond how your savings will grow, it’s also a matter of knowing when you want to retire, how long you will live and how much income you will have from all sources, including Social Security.
Finally, Calculate How Much You Will Need for a Comfortable Retirement
Once you know what lifestyle you want and where your current savings and investments stand, then you can calculate what you will need to retire.
Dave Ramsey explains that if you want an annual retirement income of $40,000, you’ll need about $500,000.
That’s a lot of money, but it gives you freedom. What you’ll get from that $500,000 is a nest egg that does not reduce. You’ll receive your $40,000 in disbursements; it won’t reduce the amount you have invested. So in theory, your retirement income would come from what your investment earns, not from the investment itself.
But, as discussed above, how much you need should not be based on Ramsey’s estimates. You want to know exactly how much YOU need.
Online tools make it easier to create an online financial plan. The NewRetirement Planner is a comprehensive tool that gives people the know-how and confidence to retire securely. It enables you to create a highly personalized and detailed plan. This easy to use tool puts you in the driver’s seat for all of the inputs. Forbes Magazine calls it a “new approach to retirement planning.”
Personalized Calculations Are Better than Formulas
Dave Ramsey believes that you can make a 12% annual return in the stock market and take an 8% withdrawal rate in retirement and be able to make your savings last through life expectancy. This logic is a bit problematic.
- If these assumptions were true, and you wanted a retirement income of $100,000 a year, then you’ll need well over a million dollars. That is more than most of us will have.
- Worse though is the fact that 12% is a VERY aggressive assumption on long term rate of return. Long term stock market returns for US large cap stocks have been about 7% after adjusting for inflation.
Don’t trust the guru, take a look at your own numbers: Determining what you need to retire isn’t a matter of accepting what Dave Ramsey, your neighbor, or even a personal financial advisor has to say. It requires some understanding of the math and the factors that go into retirement calculations. You want to look at all the levers that contribution to your finances today as well as your future well being.
Want to know how much you need? Build a plan using the NewRetirement Planner. The tool walks you step by step to answers.
Adopt Planning Habits
The NewRetirement Planner makes it super easy to get started, but getting to a reliable retirement plan takes an investment of time.
- This is a method, not a quick calculator. Start by entering some information and get an estimate of where you stand.
- Next build out your future budget and other financial information in more detail.
- Get immediate feedback on how the information you add impacts your financial health.
- Assess your coach alerts to areas where your plan may need fixing.
- Explore ways to improve your plan.
- Monitor your chance of success over time.
