How Much Money You NEED To Retire (Less Is MORE)

Pack light when it comes to retirement. Try your best to minimize your needs and minimize the things that you gotta have. Retirement should be freedom, guys. Hey guys, how much do you need to retire? Do you need $500,000, $1,000,000, or maybe even just $200,000? Whatever that dollar figure is, it could be a lot less than you think. Now let me know in the comments below how much you need to retire on for yourself, looking at your own personal situation. Now on this video, I'm gonna go over what the general rule is, and I'm also gonna go over the rule of 25 and the 4% withdrawal rule. Now I want you to stay tuned for the second half of this video, because after I talk about how much you need to retire, I'm gonna spend some time explaining the types of things that you need to be considering and thinking about if you wanna retire comfortably. And guys, if you get any value at all out of this video, please do me a favor and consider subscribing to my channel. Also, smash that like button below, share this video with someone you think maybe could use this important information, and be sure to stick around for the second half of the video. Now let's jump into it. The first thing is the 80% rule. Guys, among the financial experts that are out there who are in the profession of helping people with their personal finances and their investments, the rule of thumb assumes that the average person will need about 80% of their annual pre-retirement income to live on during retirement. Now this is 80% of your salary at the time of retirement. So if you make $50,000 per year, this means the experts say you need to be able to live on $40,000 per year. And of course, like everything else we're gonna talk about in this video, you gotta adjust that for inflation every year. So keep in mind, when you retire, that means you have to have $40,000 the rest of your life that lasts you adjusted for inflation every year going forward. That may be the next 20, 30, 40, 50 years of your life. Now that could seem hard for some people who say, hey, I don't make that much money now, so it's gonna be difficult to live on 80% of my annual salary after I retire. That's something you gotta think about and consider before you retire. Can you generate 80% of your final salary after you stop working? Whether that's from social security, any type of savings or investments that you have, maybe some rental income if you have some type of rental property, or maybe there's a pension or something at a job. But listen guys, the experts say you gotta have 80% of your annual salary at the time of retirement still coming to you after you retire. Now I wanna talk about the Rule of 25 and the 4% Withdrawal Rule. They both get you basically to the same thing, the same final place. The Rule of 25 makes the assumption that your retirement savings is going to generate at least 4% annual rate of return above inflation, so that if inflation is 2%, then your rate of return needs to be 6%. So basically the money won't run out on you. And so the Rule of 25, just like the 4% Withdrawal Rule, says that you're gonna be withdrawing 4% of your money every single year above and beyond inflation. So both the Rule of 25 and the 4% Withdrawal Rule says the same thing. So let's talk more specifically about the Rule of 25. The Rule of 25 says that you should have 25 times your planned annual spending before you retire, saved up or invested up and ready to use at retirement. That means that if you plan to spend, say, $5,000 per month after retirement, that ends up being $60,000 per year, right, 5,000 times 12 months. That's $60,000 per year that you're gonna be using in retirement. And so the Rule of 25 says you multiply that $60,000 times 25, and that equals 1.5 million. So the Rule of 25 says that, hey, you should have $1.5 million in your savings and investments if you plan to retire and spend about $5,000 per month. Now let's say you only plan to spend $3,000 per month in retirement. $3,000 per month is $36,000 per year. $36,000 per year multiplied by 25 gives you $900,000. So the Rule of 25 says if you plan to spend $3,000 per month during retirement, then you need to have at least $900,000 saved up or invested so that you can begin to withdraw it once you retire. And if you have that, the Rule of 25 says, hey, your money won't run out on you. You'll be able to have and withdraw that money for the rest of your life at a 4% withdrawal rate. Hey guys, remember to smash the like button for me. Also, don't forget to share the video and don't forget to subscribe to the channel if you're not already a subscriber. All right, let's get back to the video. So now let's talk about the 4% withdrawal rate. Again, the 4% withdrawal rate is just another way to come to the same conclusion that the Rule of 25 says. So we're basically, with the 4% withdrawal rule, we're flipping the Rule of 25 around. It's just another route to go about seeing how much you can safely withdraw in retirement from your retirement savings or your investments during retirement so that you don't run out of money, right? No one wants to run out of money in retirement. Big issue. So using the same example as before that we used with the Rule of 25, where we said that you were going to spend $3,000 a month during retirement, remember that $3,000 a month ends up being $36,000 per year. Now when you take that $36,000 per year, we multiplied it by 25, the Rule of 25, and we came up with $900,000 that you need to have in your retirement to withdraw 4% of that and never run out of your money. And what is 4% of $900,000? Well, 4% of $900,000 is the $36,000 that you can withdraw every single year, which breaks down to the $3,000 per month that you can safely withdraw. See how the 4% rule is just a twist on the Rule of 25. They work together. And of course, you adjust that for inflation. Now what I mean by adjust for inflation is just that you withdraw $36,000 this year and you increase that rate of withdrawal every single subsequent year by whatever the rate of inflation was the previous year. So let's say you retire this year, year one, you retire, and you want to go ahead and pull out $36,000 this year. Now you go ahead and take out your $36,000. You're taking out $3,000 per month, a total of $36,000 for the year. So in year one, let's say inflation, the inflation rate was 3%. So in year two, instead of taking out $36,000, you take out $36,000 plus 3% because we're adjusting for inflation. So year two, instead of taking out $36,000, you take out $37,080 because we increased the $36,000 by the 3% inflation. So this second year, year two, you go ahead and pull out more. You pull out $37,080. And then the following year, year three, you adjust for whatever inflation was during year two. And in year three, you take that $37,080 and you increase it by whatever inflation was during year two for your withdrawal amount during year three. So that's what I mean by adjusting for inflation every single year. So the rule of 4% gives you a really good idea of how much you should be able to withdraw from your nest egg, right? But it's all based on how much you think your expenses are going to be. Now here's the kicker. Let me explain what all of this means for how much you actually need in retirement. What I want to focus on for a second, guys, is that everyone's situation is a little bit different. What I need to retire on, you may not need. What you need to retire on, I may not need, right? So here is the key. Go into retirement needing as little money as possible so that every single month you don't need $6,000 and $8,000. Maybe you only need $2,000 or $3,000 each month. Because if you go into retirement needing a lot of money, then you're going to be working forever to fund your lifestyle, to fund all of your many expenses that you have every single month, right? You're going to be working forever to fund your habits if you need a whole lot of money when you reach retirement, right? You don't want to have to need so much money to satisfy your lifestyle in retirement. Desire and want less as you retire, right? Because less is more in retirement. Less is more as you begin to get up in age. You need to think about being a little more frugal. The less you owe, the more you're going to have. The less stuff you feel like you need, the more gratification you can have for the stuff you already got, right? You want to get rid of things like debt as you enter into retirement. The less debt you have, the more money you're going to have. The less material stuff you have to keep up with, the more you can do other things with your money and do other things with your time. Instead of going out and working and working and working just to take care of all the stuff that you have and want, free yourself from the stuff, right? Because then the more time you have to spend with your family and your friends and do some of the leisure activities and the hobbies that you really want to do when you retire. So just detach from all the stuff as you get ready to enter retirement or long before you get into retirement, right? Have you guys ever been to an estate sale where someone has passed away and all their stuff is laying there for sale with a $2 sticker on it and a $6 stamp on it and a $5 stamp on it? All the things, the stuff that this deceased person held so near and dear to their heart is basically on the auction block being auctioned away and sold away. And when that person was alive, they were wanting this stuff and all this stuff, right? We live in a society of excess. A lot of people have a lot more than they really, really need in terms of stuff. But the closer you get to your retirement, the more that you can detach from things, the more money and the more real true freedom you'll have today and during your retirement. So if you're thinking about retirement or wanting to retire early per se, or if you're just simply considering how much money you're going to need during your retirement every single month, every single year, try your best to minimize your needs and minimize the things, the stuff that you got to have. So my thing is pack light when it comes to retirement. And this includes, guys, reducing your debt as much as possible before you retire, right? Pay off that car, pay off that credit card, pay off those student loans, and hopefully pay off that mortgage or that house if you want to have a home when you retire. Retirement should be freedom, guys. And freedom is letting go of a lot of the stuff that we think we need and want every single day. And that's really what it's all about when it comes to retiring and trying to figure out how much you need to retire on in terms of money. What you actually need to retire on in terms of money is completely based on you and the lifestyle that you want to live during retirement. So you have to do some of these calculations for yourself in terms of figuring out the actual money or dollar amount that you need. And you got to do some self-assessment. What do I actually need? What do I not need? What do I spend every month now? What do I think I'm going to spend every month when I retire? Remember, if you're looking at pure numbers, the rule of 25 or the 4% rule, you add up what you spend, your expenses, every single month, and then you multiply that by 12. So you have an annual yearly amount that you spend, your annual expenses, and then you take those annual expenses and you multiply it by 25. And that's what the experts say you need to retire on safely so that you can withdraw 4% of that money adjusted for inflation every single year. You've got to do those calculations based on your own situation. And again, the way you bring that number down is to lower your monthly expenses. Remember, less is more in retirement. And also keep this in mind, the sooner you retire or the younger you are when you retire, the more you're going to need this money to stretch and last you for a longer period of time for the rest of your life. That's why a lot of people who retire early, they adopt a more frugal lifestyle and they live more simply so they make sure that they have enough money that's going to actually last them their entire life. And trust me, a lot of people are not prepared for this conversation and they end up retiring, but you see them go back to work because they don't have enough money to last them through retirement. And some people just like to work and there's nothing wrong with that, right? We're all going to do some type of work or we all should do some type of work for the rest of our lives. And I don't mean sweating it out and working real hard. I just mean we all want to keep busy doing something, right? You don't want to retire from your job at 55 years old and then never do nothing the rest of your life. You're going to do something and some people just love to work and that's cool too. Nothing at all wrong with continuing to work, but you want to have some choices and be able to make some decisions when you retire. And the best way to do that is as you get close to retirement, start cutting your expenses, start paying off your debt so that when you do actually retire, you don't need as much money every single month. So the fact is guys, the answer to this question of how much money you need to retire is really different for everyone. Once you do the math and you assess what you think you may need in retirement in terms of money, you may find out that the numbers say one thing, but you actually may need less to retire on than you think. And there's no hard and fast rule that says you have to follow the rule of 25 and the 4% withdrawal rule. You could always make a decision to really minimize your living situation during retirement and retire on a lot less. It could be less than you think, especially if you choose to maybe live abroad in a different country besides America or sell your home and do some traveling. Again, everyone's situation is different. You've got to make this determination for yourself based on your own situation. And please be realistic with it, right? Now, I hope I was able to shed some light of how much money you need to retire. Guys, don't forget to let me know how much do you think you need to retire on? Let me know in the comments below. Remember, smash that like button for me, share this video with someone who you think could benefit from this information, and please don't forget to subscribe if you're not already a subscriber. Guys, check out a few of these videos I put right here for more on retirement, on your financial journey to financial freedom. Hey, the best person who's going to take care of the old you is the young you. Guys, take care of yourself and take care of other people. Until the next video, peace!