When it comes to living in retirement, how much money is enough to retire on?
I’ve posed this question in the past. However, since reading (actually, I’m still reading it) The Number, I find myself asking the question again. How much do my wife and I need in order to have an enjoyable retirement? Most people shoot for the standard $1,000,000 and think that once they reach that goal they are set. The problem with that is that $1,000,000 today is worth a heck of a lot more than $1,000,000 twenty or thirty years from now will be worth.
For instance, let’s say your goal is to retire with $1,000,000 in the bank. You are now 40 and plan to retire at age 60. At a 3.5% inflation rate, your million dollars will only buy $500,000 worth of stuff when you retire. If you take a safe withdrawal of 4%, you will withdraw $40,000 your first year. However, that $40,000 will only buy you what $20,000 buys today. I don’t know about you, but that doesn’t seem like a fun retirement to me.
So, what’s a person to do? Short answer: SAVE MORE! The long answer to come later.