Retirement Planning
Calculate retirement savings target by multiplying desired annual income by years in retirement. For $60,000 annually over 25 years, you need $1.5 million. Starting at age 30 for age 65 retirement (35 years), save $42,857 annually or $3,571 monthly. This simplified calculation doesn't include investment growth, inflation, or Social Security - real needs are lower with compound interest.
Common rule of thumb: replace 70-80% of pre-retirement income. If earning $80,000, target $56,000-64,000 retirement income. Social Security might provide $20,000-30,000, requiring you to fund $30,000-40,000 from savings. Use 4% withdrawal rule - divide annual needs by 0.04 to get target savings ($40,000 / 0.04 = $1 million).
Start early - 25-year-old saving $500/month at 8% return has $1.4 million at 65. Waiting until 35 requires $1,100/month for same result. Maximize employer 401k match (free money), use tax-advantaged accounts (IRA, 401k), increase savings with raises, and review plan annually. Retirement planning is marathon, not sprint.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Varies by lifestyle. Common targets: 10-12x annual income or 25x annual expenses. $60,000 annual spending requires $1.5 million (25x rule). Include Social Security, pensions in calculations. Use 4% withdrawal rule as guide.
Withdraw 4% of portfolio annually in retirement. Historical data shows this sustains portfolio 30+ years. $1 million provides $40,000/year. Adjust for inflation each year. Conservative approach uses 3-3.5% for extra safety.
Immediately. Every year delayed significantly increases required savings due to lost compound growth. Even small amounts early grow substantially. Starting at 25 vs 35 can mean half the monthly savings needed for same result.