As saving, wealth creation, and retirement planning are a big part of this site, you may be wondering, “How much money do I need to retire?”

The answer is simple:

• Multiply your desired/required annual income in retirement by 25.

Withdraw 4% or less the first year, followed by the same amount every year after that, adjusted for inflation. This is how much money you’ll need in retirement. For example, if you want $100,000 in retirement then you’ll need a pot of $2.5 million. This translates to the 25x rule (25 x $100,000 = $2.5 million or 4% of $2.5 million = $100,000).

Here are some interesting statistics on retirement:

• There are some 49 million retirees in America. The average retirement age is 59.88.
  • Women make up 54.74% or 26,965,901 retirees.
  • Men make up 45.26% or 22,295,155 retirees.
  • 62 is the most common retirement age and the minimum required to start collecting social security in the United States.
  • 66 is considered full retirement age and nearly 90% of Americans have retired by then.
  • The infographics below shows the cumulative distribution by age.
• The worldwide life expectancy is on average 71.5 years.
  • Women’s life expectancy is 72 years and 8 months.
  • Men’s life expectancy is 68 years and 4 months.
  • If you’re curious about life expectancy by country or just by states within the United States, then click out the infographics below.

By now, you’re probably wondering why we spent so much time discussing the average age of retirement and life expectancies. The reason is this: For the longest time, $1 million is the gold standard to shoot for in retirement. If you had a million dollars then you were set for (the remainder of your) life.

These days, people are living longer than back when the $1 million gold standard was set. Chances are good you’ll live to 90+ even if you think your life expectancy back when you were born should be around 70. Even a 40 year old today may very well reach 90. Medical technology is constantly improving. New laws are constantly being passed, which reduces the amount of harmful environmental contaminants and makes things such as cars safer.

This means you should have enough in savings to enjoy at least 20 years in retirement. Now, if you’re part of a a healthy, upper class couple who are 65 today, you have a 43% chance than one or both of you will live to be 95. So, you’ll need to have more money in retirement.

Running out of money is one of the main fears of most retired people. Depending on which state you live in retirement, you’ll have enough money for anywhere from 15 to 24 years. For example, if you retire in Michigan, Alabama, or Mississippi, then your $1 million lasts around 24 years.

On the other hand, if you live in California, New York, or Hawaii, then your $1 million lasts around 15 to 11 years.

Unfortunately, $1 million isn’t as much money as it once was. So how much do you need?

Depending on the publication source (see infographics), this number varies.

• Fortune suggests 60% of your pre-tax income.
• CNBC, Retirement Living Information Center, and Nerdwallet all recommend 70% of your pre-tax income.
• Fidelity recommends 10 times your final pay at age 67.
• Both T. Rowe Price and Vanguard suggest 75% to 85% of your pre-tax income.
• AARP recommends anywhere from $1 to $1.5 million or 10 to 12 times your current income.

Now we’re mixing percentages with numbers. Who do you believe? Clearly this is a confusing mess. The best way, it seems is to set milestones along the way as you grow, both in your career and in the number of gray hairs on your head.

For example, by the time you’re 30, you should already have 1x your salary in savings. (Savings in this context seems the sum of monies in investments, high-yield savings accounts, and the like. Another way to think of this is your net worth.)

By the time you hit 45, you should have 4x your salary in savings. When you reach 67 years of age, then you should have 10x your salary in savings. This sounds overly complicated. So, let’s summarize the summation of the multiplicities and say:

Follow the Multiply-by-25 and 4% Retirement Rule as outlined at the beginning of this article.

Now that you understand the rationale behind these numbers, how much should you be saving every paycheck to reach 25x your desired yearly retirement income?

• Contribute at least 10% of your gross earnings to a retirement fund as a start.
• Overtime, increase your contributions to 15% or more to reach your retirement goals.

If your employer offers a 401(k) retirement plan and does matching, you should at least contribute up to this matching percentage. If you don’t, you are literally walking away from free money.

Of course, it’s easier in theory than in practice. When yours truly first started, I was only contributing 5% of every paycheck. It’s only in the past year (a little past 40 years of age) that I started contributing around 12% of every paycheck. I still haven’t reached the maximum, allowable yearly contribution allowed by the IRS.

The takeaway here is straightforward. Do what you can and what is within your abilities. That’s the best you can do.

The American Nest Egg Reality

Reality is quite different than what everyone should do. One in three Americans have $0 saved for retirement. Over 50% of those who do have something saved have less than $10,000. Around half of all US households have no retirement accounts at all (no pension, no 401(k), no IRA).

Sadly, around 50% of Americans only start saving for retirement around the age of 36 or older. Women are 27% more likely than men to have no retirement savings. (Ladies, with the high divorce rate and the fact that your husband may not even have a retirement account, you have to save yourself.)

• 72% of Millennials have saved less than $10,000 for retirement–some having nothing saved at all–owing to mounting student loan debt.
• 78% of workers say a 401(k) plan is their primary savings.
• The average 401(k) balance across all age groups is $102,900 while the average contribution is 6.2%.

Sounds dismal, right? Here’s the reality. Only 17% of Americans believe they have enough money for retirement.

Just in case you’re wondering how you stack up with your peers, here’s a snippet from the infographics.

For example, 30 to 39 year-olds on average contribute 7.6% of their salary and have a 401(k) balance of $42,700. Those close to retirement or already in retirement (60 to 69 year-olds) contribute on average 11.1% and have a 401(k) balance of $198,200.

Once again, reality does not match perception and how much the experts say you should be saving in order to live the retirement you want.

So what can you do if you’re way behind the curve? Start buttoning down the hatches and cut costs wherever you can. Look at your spending and see where you can reduce your monthly expenses and start contributing that dollar amount to your retirement funds.

(If you’re fortunate enough to be in the 17% group of Americans who believe they have enough money for retirement, perish the thought. Guess what happens when your peers, the same ones who do not have that retirement fund, decide to get into politics, pass or support laws that end up razing your funds?

That’s right. You won’t have anything left. This happened in Greece. Politicians there decided to raid the coffers of retirees to help pay off the mounting national debt. While they didn’t exactly raid the coffers directly, they reduced the amount of pension retirees received every month.

It could very well happen in the United States, especially as we increasingly move towards more socialistic policies. The best you can do to insulate yourself is to support laws that help your peers build a retirement fund through automation so that they won’t look at siphoning from your pot of money decades later.

Don’t rely on or expect that your children will take care of you in retirement because you took care of them. Fact is your children owe you nothing, and you may not have the relationship you expected with them. They may be estranged from you by the time you reach retirement. Worse yet, they’ll be in the same situation as you are now, expecting their own children to take care of them because they never saved up in the first place.

Automate your savings. After all, you can’t spend what you don’t have. The easiest way is make sure of this is to divert a part of every paycheck to your 401(k) and other investment accounts.

Take advantage of the catch-up contribution if you are age 50 and older. The IRS increases the catch-up contribution every year. So be sure to maximize this as you do also get a pre-tax advantage.

If you’re younger than 50, still consider maxing out your contributions to the amount allowed. Online tools allow you to set a percentage of your paycheck to contribute to your 401(k), which is like automating your savings.

If you can, develop other sources of income. Look into opening an Roth IRA, especially if you’re young and just starting off in your career. Contributions to Roth IRAs are post-tax, which helps to lower your overall tax liability. The other advantage is that you pay taxes now so that you don’t pay taxes when you start withdrawing in retirement, which could be a lot higher, especially if you get good at building wealth.

Divert monies into normal investment accounts. Invest in real estate. If you don’t want to put in the manual labor, consider syndications such as Fundrise. Start a side hustle and generate extra income. One of the most sure-fire way to increase your networth and your retirement funds is to make more money. It’s really hard to do it through saving more, as you’re discovering now.

If you are near the age of retirement, consider moving to a low-tax state. As we saw earlier, your retirement fund goes a lot longer in some states more than others. For example, if you had a $1 million dollars in Hawaii, you would run out of money in just 11 years, 8 months, and 20 days. In Arkansas, that $1 million will last you 24 years, 7 months, and 4 days.

Of course, you can take even more drastic action and move overseas, where the cost-of-living is significantly lower than in the United States.

 

Infographics credit: Thanks to Nikola Djordjevic at MedAlertHelp for reaching out to me with this excellent infographics.

Conclusion

All these things sound great but what you should really be asking yourself is this question:

How much is enough?

For example, do you really need $2.5 million in savings for a $100,000 yearly income in retirement when $40,000 every year, or $1 million in total savings, will do you just fine? It may not even be possible, depending on your current situation.

In other words, write out your retirement plan and figure out what you’re trying to accomplish. Avoid closing your eyes and hoping for the best, that everything will somehow just work out.

Avoid the temptation to “think it through in your head.” Put your plan on paper. When it’s on paper, it’s more solid and you’re forced to verbalize what you really want. There really is a difference between the two. This is why I highly suggest writing out stories on how you want to really live your life rather than just solely visualizing in your head. After all, both are forms of visualizations with an important distinction. Writing forces you to be clear by making you express in words your dreams. When you can verbalize it in writing, your thoughts are more specific.

You may not know how to put your story into words the first or even the one-hundredth time. With each iteration, you’ve presumably gone away, tried something new, ask questions, read books, and try to gain clarity. In subsequent iterations of story-writing, you notice something wonderful: Your story starts becoming more clear, concise, and more importantly–real– to you.

That’s the heart of getting to work to build the retirement that you want. It’s about overcoming the limiting mind-sets and beliefs which have been keeping you from what you want.

If you like what you read today, be sure to further your journey and get your free copy of 7 Money Myths Keeping You From a Positive Cashflow.