Solely relying on social security and government funds for retirement could mean waiting until 62+ years old to retire. I went on my social security account to find out just how much could be waiting for me if I retire for full benefits at age 67: $3,741. This amount is also taxable, which means even less money each month!
For most, relying on social security for retirement may not be enough to cover living expenses, which is why some people can't retire at all. What has typically been taught about retirement is truly misleading - retirement is not an age. Retirement is not at 62, its not at 67, but its when you can financially support yourself with passive income - which can really be at any age.
What is passive income?
Passive income is money that you earn without being involved or actively working to earn money. Examples of passive income include:
Dividends and interests from investments
Rental income
Royalties
Business income
Automated online business
Blogs with passive monetization
Investments as a silent or limited partner
So, how much money do you actually need to retire comfortably?
Truthfully, its a little bit of a guessing game due to multiple variables involved, but a good place to start is with the 4% rule. This rule suggest that withdrawing 4% of your retirement savings annually will ensure that it lasts for at least 25-30 years.
Using this rule you can calculate how much money you would need to retire comfortably by taking your estimated annual expenses and multiplying it by 25.
Financial Independence (FI)/Retirement = Estimated Annual Expenses x 25
Here is my free FI Number Worksheet to help guide you with estimating your annual expenses and FI Number:
Examples:
Ryan estimates that he needs $5,000 each month or $60,000 a year at retirement.
Using the rule above, Ryan will need $1.5 million to retire comfortably
Ryan keeps it simple by investing $1,500 a month in index funds through his brokerage account
He started investing at age 24 and is able to reach his FI Number in 26 years!
Ryan is able to retire at age 50!
Avery estimates that she will need $10,000 each month or $120,000 a year at retirement.
Using the rule above, Avery will need $3 million to retire comfortably
Avery consistently invests in the stock market through index funds by maxing out her retirement accounts (401k, IRA), getting an employer match, and adding additional income to her brokerage account
She invests $4k/month starting at age 28 and is able to reach her FI Number in 23 years!
Avery is able to retire at age 51!
Estimates calculated via Compound Interest Calculator with 8% returns: Investor.gov
Now let me guess what you're thinking....
If I contribute in my retirement accounts, I can't take that money out until I'm at least 60 to avoid being penalized!
And my answer to that would be..... but yes, you can! :)
Coming soon: Strategic ways to make withdrawals from retirement accounts before age 60
Disclaimer: This is financial education only, not financial advice. Please be advised that the potential for market growth is not guaranteed, and past performance is not indicative of future results. Investments in financial markets carry inherent risks, and individuals should carefully consider their financial objectives and risk tolerance before making investment decisions
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