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How Much Money Do I Need to Retire? Retiring on Your Own Terms (You Don’t Need a Financial Advisor)

“How much money do I need to retire?” is a question that needs to be asked more often – at least every year seems right to me, regardless of your age. Along the same lines are questions like “How much will I receive from Social Security, my pension, or my 401k? Will this money be enough to retire?” Equally important is what you do with the answers.


Some statistics reported in 2022 seem like we aren’t asking the questions AND we aren’t doing enough. For example, Americans aged 65 and over only have an average annual income of $24,224. Even more discouraging is the median annual pension payment, which ranges from $9,000 to $22,000. What about your 401k? Unfortunately, it doesn’t look good, with only 32% investing in this financial vehicle.


And what about debt? You can live off less money if you don’t have debt – but 46% of homeowners aged 65 to 79 have mortgage debt. Finally, based on a study that asked how much Americans had in retirement accounts, the results showed that 64% of Americans will retire broke.


These statistics don’t look good for many Americans. Would the numbers be better if there was a straightforward way to monitor and plan for it?


This post will show you how to calculate how much money you need and includes a financial planning template to download. With this information, you will be able to ask and answer the question of “How much money do I need to retire?” as many times as you want and monitor your progress using your own financial data. This will help you retire on your terms.


Table of Contents


1. What does retirement mean for you?

2. Retirement Can Last Decades

3. Living Longer Doesn’t Mean You Need More Money

4. Building Your Retirement Based on Expenses

5. How Much Money Do I Need to Retire?

6. You Know the Amount of Money You Need – Now What?

7. Action Steps


**This post contains affiliate links and On the Move with Liza and Stephen will be compensated if you purchase after clicking on our links, with no cost to you.

 

Real quick, before you review this post for your financial planning…


If you haven’t read my full post Road to Retirement In Seven Steps, I highly recommend reading it before reading this post. It was created to explain how to understand your personal finances and get you on the road to financial freedom. I recommend completing the entire post before reading this one as it has key information for getting started with your finances.


Another guide to read before this one is How to Invest in the Stock Market, which goes over the basics of investing, the stock market and how we make money from investments.


Finally, you may want to consider reading my recommendation of Personal Capital, a free financial tool to monitor and take action on your finances. This is the app that I use to monitor my own finances.


Okay – thanks for reading. Now, on to the blog post, How Much Money Do I Need to Retire?


 



Retiring On Your Own Terms


What does retirement mean for you?


Retiring on your own terms means spending your priceless time in any way that lines up with your values. One exercise to complete is to sit down with a pencil in hand to figure out what life would be like in retirement. What are some of your goals? Is there something that you want to do, pursue, or learn? What will be your standard of living?


When I think about how my life will be in my later years, I like to look at it across a spectrum. On one side of the spectrum are my stretch goals – it's fun to think big. On the opposite side, I like to think of less desirable but realistic scenarios and build ways to avoid them when retirement planning. It is a balance between practical expectations and the standard of living I’m striving to achieve. Everything is on the table for me when I think about retirement. Don’t forget to build in the fun, too!


Remember, retirement can be whatever you want it to be, but you need to do proper planning. One question to consider is how long you will be in retirement.


Retirement Can Last Decades


How long will retirement last? Part of this answer depends on the age at which you retire and how long you will live. If you want to take a simple test on life expectancy, try this life expectancy calculator, but don’t sign up for anything.


From a financial perspective, here are a couple of scenarios on what retirement could be to ensure that you don’t run out of money:

  • Live on your investments and Social Security.

  • Work part-time. Retirement doesn’t have to be binary: working or not working.

  • Retire later – delay to get more time in the market and higher Social Security payments.

  • Retire early – this is possible. I did it and I’m not special. I don’t have a fancy finance degree. I just used these methods.

Remember, retiring on your own terms is completely within reach if you plan for it.


Living Longer Doesn’t Mean You Need More Money


A good example is geo arbitrage. Geo arbitrage is having or earning a higher cost of living but living in a lower cost of living place. This could be living in a different state. For example, I lived in NYC for more than 30 years and I loved it! But my plan is not to retire there. I made NYC money and will retire in a less expensive state with a lower cost of living. Here are a couple of states to consider according to the Missouri Economic Research and Information Center:


  • Mississippi

  • Kansas

  • Oklahoma

  • Arkansas

  • Missouri


What about another country? There are countries all over the world where you will have a cheaper cost of living compared to the United States. Here is the 2022 Global Retirement Index of the top 10 countries to live in:


  • Uruguay

  • Spain

  • Malta

  • France

  • Ecuador

  • Colombia

  • Portugal

  • Mexico

  • Costa Rica