How Much Money Do You Need to Retire Comfortably

Everyone has a dream to be able to stop working one day in their career life and retire comfortably. Retirement can be an endless summer that anyone can get to enjoy during their golden age. However, they know to retire comfortably require to save a substantial sum amount of money from sustaining their everyday living expenses without having to work again. Just by relying upon and living off from Social Security (which millions of people do it) in your older age won’t be very enjoyable. Some studies show that the average monthly payout that social security will provide these days is around $1,300 per month. Many of you readers and I know that this number is impossible for someone to retire comfortably, especially if you are living in developed countries such as the United States. I’m not an American citizen, so I won’t even get the benefit of having Social Security to aid me when I’m old. I have to find my solution to achieve this dream. However, that doesn’t stop me from wanting to fulfill my retirement dream. I dream of being able to retire comfortably without having to worry about money problems. Moreover, I want to enjoy my old age, being able to spend quality time with my loved ones and family members. I mean, don’t you readers dream of having the ability to not worry about money again and getting out of the nine to five lifestyle (rat race). But how much do you need to save up to achieve this lucrative goal? Furthermore, how do you know if you meet the desired amount? Different people have different expectations of how their retirement life is going to look like. I have my own expectations on the way I want to retire, and my standard can be quite high compared to others. But to achieve that dream, I am required to have a certain amount of money and an excellent strategy to achieve that goal. In this article, I will discuss how much money you need to retire and how to check if you are qualified to do so.

Predicting How Much You’ll Spend Annually During Your Retirement.

I think this is an excellent strategy to find out how much money you’ll need to retire comfortably. Know how much you’ll need annually to retire comfortably. By dividing your desired annual retirement income by 4% can show you the amount you’ll need to meet your retirement goal. For example, if I want to retire comfortably in the United States when I’m old, I need to have a retirement income that can support my lifestyle over there. I love that country since I was living there for my education during my young age. I lived in America for approximately 11 years since the year 2001 to the late year of 2012.

After graduating from San Francisco State University with my finance degree at the age of 22, I decided to move back to my hometown to help in my dad’s company. I have not gone back to the United States since then, but I wish I can live in the United States during my golden age. I believe for me to live comfortably in America would require me to be able to earn $200,000 annually (passive income) without having to work. The reason why I choose this number is because I know to live comfortably in countries like the United States has a high expense, such as rent, labor cost, and many more. Moreover, I also have to account for the inflation rate; since decades ahead, living costs in any country would be much higher compared to now.

By dividing my annual retirement income goal of $200,000 and divide that number by 4% will give me $5,000,000. Therefore, I now know how much money I’ll need to be able to live comfortably in the United States during my retirement time. On the contrary, to achieve $5,000,000 for retirement is not as simple as it sounds. It’s going to take much saving and investing discipline to achieve that goal as well as being able to earn more income so that I’m ready to save up and invest the money. 

Adding Up Your Retirement Income (For Americans).

Now that we know how much we’ll need to save up to retire comfortably, the next step is to see whether your income will be enough to cover them. If you are an American citizen, you have many options that can aid you during your retirement.  

First is the income you’ll get from Social Security. If you have been working and paying your Social Security system for at least ten years, you are then able to project how much you’ll get from Social Security benefits. The closer you are to retirement, the more accurate the estimate is going to be. Be aware, the earlier you start taking money from your social security, the less you’ll get each month. You can opt to take the benefit as early as age 62 to as late as age 70. There is no further incentive of waiting on retirement after age 70 since that age is the max it will go. 

The second is to see how much you’ll get from your Pension plan. If you have a pension coming to you from your current job or former one, the plan’s benefits administrator will give you an estimate you’ll be eligible to receive when you want to retire. If you have a spouse, you will want to consider likely income under different arrangements, such as taking benefits in the form of a joint and survivor annuity. This would give you the advantage of having your spouse receive a percentage of the money if you passed away first. 

Third know your 401(k), IRAs, and other retirement accounts. Many financial advisors advice a 4% withdrawal rate because through thick and thin, you can expect your portfolio to last at least 30 years or longer. Not every expert agrees with the 4% withdrawal rate, but many would argue not to exceed it. For example, if you manage to save up $1,000,000 by the time you begin your retirement. Applying the 4% withdrawal rule, you can take $40,000 a year in income from your retirement accounts, with a small adjusted each year for inflation. However, if you have $2,000,000 in your retirement account, you will be able to receive $80,000 annually. And if you have only $500,000, it would be $20,000 a year. So it is best if you can max out your 401(k) account since companies will usually match the amount you contribute to it.

After you add all the benefits, you can get from Social Security, Pension Plan and Retirement Accounts such as 401(k)s and IRAs. You’ll probably get an estimate of how much you will arrive annually. All you need to is to see whether your predicted expenses will be enough for retirement or not. Of course, it would be better if you have more. But if the amount you think you will get is smaller than expected, you may need to make some adjustments, such as increasing your income or lowering your expenses or doing both. That also can mean that you’ll probably be required to work additional years and save up for more before you can retire. It’s best to start early in life so that you can enjoy the power of compound interest.

My Strategy For Retirement In The United States.

Many readers who are working in the United States have these advantages the government provides for retirement. However, from where I’m coming from, I don’t have these facilities to aid me. I want to be able to retire in America since I spent my childhood time there. Because of that, I have to find my strategy for me to retire comfortably in my old age. This goal results in me having to make my investment portfolio using dividend growth investing that can pay me passive incomes in the form of dividends when I want to start my retirement.

Since this finance blog was initiated (August 2015) after splitting my portfolio with my brother, I have turned my $400,000 portfolio into $685,000 as of today (October 11, 2019). Moreover, my portfolio is currently generating me approximately $24,000 annually after tax deducted and will be using that money to be reinvested into the portfolio until I reach my goal. I’m glad that I started this plan since I was young gave me the advantage of the time that compounds my portfolio until my retirement age.

My goal is to have my dividend growth portfolio to generate $200,000 annually after tax for my retirement. Furthermore, I have also added an additional $2000 per month ($24,000 annually) that I generate from my parent’s rental property to my dividend growth portfolio since August 2015 and will continue to do so. Using the Dividend Investment Calculator that Investopedia provides, I predict that if I maintain adding $2000 per month to my current $685,000 dividend growth portfolio (October 11, 2019), and assuming my investment have a dividend growth rate of 5% with a starting dividend yield of 4%, and growth rate of 6% from stock appreciation. My portfolio would have a balance of $9,830,696 twenty-five years (the year 2044) from now (the year 2019). 

At that time, I will be age 54, and my portfolio will generate a pre-tax of $292,701 in dividends in the year 2044. Let’s assume the tax rate is 20%, which means that I would generate $234,160 a year after tax deducted. Divide that number by 12 months, and that will make it to about $19,513 in dividends a month. I believe that the assumption numbers I used in the Dividend Investment Calculator are quite conservative and achievable.

Even after I stop dividend reinvested to my portfolio after that time (the year 2044), my dividend growth portfolio will continue to grow in value, and the amount of dividend received would keep increasing year after year. I placed a chart of how much my dividend growth portfolio would increase after the year 2044. Although I stop reinvesting the dividends I receive from my portfolio after the year 2044, my portfolio balance would grow to $17,605,280 and have dividend payout of $476,779 by the year 2054. And Yes, I would be old by the year 2054 (age 64), but I would be enjoying the dividends from the portfolio generating for me by the age of 54 years old (the year 2044). I think being able to receive more than $200,000 in dividends by the age of 54 without needing to sell the stocks in my portfolio is quite amazing.

Moreover, my portfolio would continue to grow in dividends and have capital appreciation from the stocks, even if I don’t reinvest the dividends into the portfolio. I would be able to enjoy the fruits from the tree (my portfolio) I have planted since this finance blog is initiated in (August 2015). The goal is still far ahead; however the goal is achievable. I need to be disciplined with my routine of investing the rental income I receive every month and have dividends I received reinvested into my portfolio.

To Sum Up.

After reading this article, I hope you guys now know how much money you’ll need to meet your desired retirement lifestyle. Applying your desired annual retirement income by 4% will give you the amount you’ll need to save up before you can retire. I have my own goal of having a $200,000 annual income ($16,500 a month) for my retirement. It will take me another 25 years before I can retire with that kind of passive income using the dividend growth investing strategy. It’s still a long saving and investing journey before reaching that goal, however using a conservative calculation to my current dividend growth portfolio, I think I can achieve that goal by the age of 54. I hope by the year 2044, I can spend quality time in America with my best friend and loved ones.

With that kind of passive income, I predict to receive; I could purchase a lovely five years old used sports car whose price already depreciated from its original cost. It is my dream to be able to drive a fast sports car from San Francisco to Los Angeles. It reminds me of the good times I had when I was still living in America, knowing the streets are wide, organized, and far from traffic. Enjoying the ride with my future sports car and knowing that I have enough passive income coming in my pocket each year will give a sense of peace and enjoyment.

I think this would be a great retirement goal for me that I’m patiently waiting for. Anyways, I had shared my desired annual retirement income of $200,000 and what I plan to do when I reached my retirement. So how about you guys that are reading my blog? How much is your desired amount of money do you need to save up to reach the retirement lifestyle you want to live? Share your dream and retirement goals in the comment section below. I hope we can be inspired and encourage each other to reach that retirement goal.