How Much Do You Need To Retire?
Do you know your numbers? If not, it’s never too early to get started.
You need to have a good idea of the amount of income you will need to support your lifestyle after you retire. The earlier you begin creating a plan and reviewing it on a regular basis, the easier it will be to achieve your goals. Here are some “big picture” ideas to think about that I hope will send you to a financial planner to work with your specifics in more detail.
We’ve all heard people say they are trying to hit a goal of so many millions. The problem with that is that it may or may not be the right target. The goal must be customized for your specific situation.
TARGET SAVINGS GOAL
Monthly income coming in from all sources – Monthly income needed to support lifestyle.
Income
Rather than a generic, “I need ?1-2-5? million dollars in savings”, a better solution is to figure out how much income you will have coming in from all sources. Most people will have
- social security income
- retirement income from IRAs or pensions, etc.
- rental income if you own property. (Many landscape business owners have invested in real estate)
- other sources of income (annuities, etc.)
Expenses
The other part of the equation is to figure out what your expenses may be and for how long.
- You probably won’t need 100% of your pre-retirement income since you won’t have some of the expenses you have earlier in life.
- You may have paid off your mortgage(s),
- You may be able to reduce expenses you had related to working full-time and
- Retirement savings contributions are not being made.
While you are in the accumulation phase it is difficult to imagine the distribution phase, but it is important to realize that the more time you have to plan and save, the more flexibility you have in making decisions that could impact the results. For example, if you are planning to downsize as a part of your post-retirement lifestyle, it’s best to avoid having to sell your house in a “fire sale” for less than it is worth.
Goal
To arrive at the target savings goal, you can use a retirement calculator (widely available on the internet) or use the 4% rule. This is/was that in your first year of retirement you can withdraw 4% of your savings. This translates, per The Motley Fool, the 4% rule formula.
Retirement Savings Target = Annual income required x 25.
So, if you needed to have an additional $4,000 per month (or $48,000 annually) you would need to have an additional $1,200,000 in savings/investments. Note that these examples do not take taxes, inflation, or variations in the stock market into account, which will obviously make a huge impact on the outcome. I encourage you to seek a qualified professional to help with these calculations.
If you’d like to discuss selling your company, your business’ readiness for sale, how your company can maximize its value, or other related topics, we’d be happy to have a confidential complimentary conversation with you about these or any other exit/sales/buying issues.
You can reach me via email: [email protected] or on my cell phone a: 224-688-8838.
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