Retirement Magic Number Calculator

Posted on by Emily in General

Many people are unsure of their retirement “magic number” and wish there was an AARP calculator specifically built for the task. While thinking about retirement can often be overwhelming, the truth of the matter is that it’s absolutely crucial that you start thinking about it as early as possible, despite the stress that it might come with. Having a better understanding of what you’ll need in the future will help you be active in putting the right amount of money away now.

Retirement Magic Number Calculator

Everybody’s “magic number”, or the perfect amount of money saved for retirement, is different. Some of us are eager to retire in comfort– we want to be able to live with lots of goodies we abstained from throughout our working lives: traveling, vacation house, new car, etc. If you’re thinking of your golden years being on the expensive end, it’s important that you plan on putting a good chunk of change aside– $1 million + is realistic.

For those of us who want to live more frugally after 65, less money needs to be put aside, but plans for the future should be more secure. You can sell your house and move into a smaller spot, retire and live abroad like kings in places like Thailand and Guatemala, or plan on sharing a home and expenses with other retired people.

Retirement Magic Number Calculator

This is a good starting point when calculating your retirement magic number. Take a piece of paper and pen and spend about an hour describing what you want in your retired life. What do you want to accomplish? What would be comfortable for you? What’s the bare minimum you would like to have in your bank account.

Now, let’s break down the mathematical part of this. Realistically, your retirement “magic number” should go as follows.

On average, you need to plan on spending 60-100% of your pre-retirement income each year of your retirement.

For example: A retiree made $50,000 a year before retiring at the age of 65. Anticipating that they will live another 15 years, they decide to put aside enough so there’s about 80% of their pre-retirement income to spend annually.

80% of $50,000 = $40,000 x 15 years = $600,000 needed for retirement!

There are many costs to anticipate when retiring — living expenses, food, travel, helping family and sadly illnesses. Anticipating the future is the best way to deal with retirement costs. Here are some tips:

1) Calculate how much money you will need to retire. All you need to know is the average annual income you anticipate in your career until you retire, calculate 60-100% of that amount and then multiply it by the number of years you think you’ll live after you retire. A little morbid, admittedly, but good planning nonetheless.

2) Opening a savings account at your bank.

3) Begin putting money away. The best way to do this is to plan on putting away a certain percentage of every paycheck you receive in your retirement fund. Also, any extra money you may receive (tax returns, bonuses, etc) and don’t need at the moment plan on putting into the retirement fund.

Your retirement magic calculator should account for 60% (bare minimum, living frugally whilst retired) to 80% (living more luxuriously whilst retired) of your pre-retirement income. Multiply that amount by how many years you can estimate being alive  and remember to account for unexpected tragedies and expenses.

Retirement Magic Number Calculator

Don’t let the amount you need to save for retirement scare you! Just take a deep breath and try your best to put as much money away sooner rather than later. You won’t regret it. Retirement Magic Number Calculator

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