Retirement can be an endless summer.
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There's a simple calculation to determine how much you need to have saved before you can retire
Once you know your magic retirement number, you can walk away from your 9 to 5 job as soon as your account balances hit it.
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If Saturday beach trips and golf games have you dreaming about walking away from your 9-to-5 for good, there's a simple way to calculate how much you need to save to make it happen:
Your desired retirement income ÷ 4% = How much money you need to retire
For example, if your perfect retirement salary is $80,000, divide it by 4% and you get $2,000,000. That's your magic retirement number, and you can call it quits as soon as your account balances hit it — even if you're only 28.
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Take a look at the chart below to see how much you need to save to fund retirement income ranging from $40,000 a year to $250,000 a year.
Here's why this works: If you have enough saved up, you should be able to withdraw 4% each year to pay for your living expenses in retirement. Using the 4% withdrawal strategy requires earning at least a 5% investment return annually (after taxes and inflation) on your retirement savings.
Keeping all your savings in cash won't do the trick — investing is the real key to make sure you don't run out of money in retirement.
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