Asked by Elaine  |  Submitted August 31, 2015

What is a reasonable amount of money one should set aside for retirement?

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  Answers  |  3

September 01, 2015


Great question. How much you need to save for retirement comes down to the income you want to have. Retirement income planning should always start with estimating your budget.

So, how much income do you need in your retirement? Now you can use that number to determine how much money you would need saved in order to generate that income.

Most financial advisors will tell you that you can expect to take income 4% of the value of your accounts as income. Thus if you have $1,000,000 in retirement accounts, you can take $40,000 per year in income.

If you simply take the annual income you feel you need and divide by 4% then that's a good general rule. Remember, if you're pulling money from a 401(k) then you have to account for tax. So if you need $40,000 to live on then you need to draw $47,058 per year (assuming 15% tax rate). Therefore you need $1,176,470 in order to provide $40,000 of take home income.

Side note: What will taxes be when you retire? Higher than today? If you think they'll be higher than they are today, then using a 401(k) and IRA are a bad idea.

Now, here's an article from CNBC that explains why the 4% rule doesn't work. This is the reason you working with a good advisor is so important.

I hope this helps answer your question.
Please let me know if I can help in any way.


$commenter.renderDisplayableName() | 09.25.20 @ 13:07


September 08, 2015

This is a complex question. Rules of thumb don't work very well because everyones need is different. Do you have a pension? If so, your need is less than someone who does not have one. How old will you be when you retire? The older you are, the fewer years you will be retired, so the less you need. If you are married, did both you and your husband work? If so, then your expected income from Social Security will be much higher than a couple in which one spouse did most of the earning, and so you might get by with less saving. If your money is all in retirement accounts, your tax bill might be higher than someone whose money is in after tax accounts or Roth IRA's - so you might need more savings - just to pay the taxes. Best advice I can offer here is to find a Certified Financial Planner and seek some assistance with crunching your own numbers.

$commenter.renderDisplayableName() | 09.25.20 @ 13:07


March 27, 2016

Hi Elaine.

The best way to determine what is "reasonable" for you in retirement is to identify what your retirement number is.

Where are you financially?
Where do you need to be financially?
These are individual answers. There is no one size fits all.

We can easily get together (email, phone, etc) and do some calculations that will answer these questions. No obligation

The amount you set aside is less important than the ROI that it generates.

$100k will double to $200k in 24 yrs using a 3% rate (inflation?)
$100k will double to $200k in 5 yrs using a 15% rate (U.S. Treasuries have been doing this over the last 5 yrs)

Keep in mind GIIGO- Garbage In Garbage Out. Therefore, we need to both be on the same page with your current financial situation and your future goals & objectives. Also, we always include a margin of safety because. predictions are difficult especially about the future.

Feel free to contact me to discuss. No obligation

It's not what you make, It;s what you keep that determines our lifestyle.

$commenter.renderDisplayableName() | 09.25.20 @ 13:07