How Much Money Do I Need To Retire Comfortably?

Most people look forward to retirement after working for several decades almost relentlessly. If you’re retiring soon, or even this year in 2024, surely you would be looking forward to a happy life since you wouldn’t be working anymore and can do a lot of things in your free time. Indeed, you will have 24 hours a day free and all for yourself.

However, retirement is much more than simply stopping to work. Retirement marks the successful end of your working career. It is a landmark of your life in every sense. Over the years, you’ve been working, saving and investing for those years when you don’t have an active income. And when the time to retire actually comes, you would have to be ready in every way, including financially.

The Sad Story of Retirement

While every American, or rather, most people in the world, look forward to those golden years after working for decades, most of them are unprepared. The saddest part is some 64 per cent of all Americans of working age aren’t really prepared financially for retirement. That’s because most of us don’t save enough money during our working year.

The situation can be very hard for persons living on lower incomes or even daily wages. Since they don’t have enough savings, it might not always be possible to put aside a little money for retirement. Often, people also miscalculate the amount of money they would receive from their Social Security accounts after retirement.

This situation could prove disastrous in many ways. 

A report published by the reputed daily, The Washington Post, in 2024 states that over 70 per cent of women and men that had retired at the age of 67 years are now working either full time or part-time or as freelancers. This includes persons that had taken early retirement during the Covid-19 pandemic of 2020.

The main reason these retirees above 67 years of age are back in the mainstream labour force of the USA is simple: They need money desperately. The day they stop working could mean it’s impossible to live happily again, as most retirees want.

Also read: Top 10 Money Saving Tricks for Retirees

How Much Do You Need To Retire?

This brings us to the main question: How much money do you need to retire in 2024? Understandably, the answer is not simple by any yardstick. When we talk about money and how much anyone needs at any point in time in their life, there’re no minimum or maximum scales. All money is welcome.

However, financial experts in the USA state that an individual should have at least 80 per cent of their monthly income, multiplied by 25 years, as their savings for retirement, in 2024 or even later. 

This means if you were earning $5,000 per month or $60,000 per year before taxation, you should have an income of at least $40,000 per year before taxation when you retire. This means if you’re retiring in 2024, you should have at least $1 million as savings. That’s because of the simple formula, considering you survive for another 25 years after retirement.

Therefore, you can calculate how much money you need to retire in 2024 by using this simple formula. Add your monthly income to arrive at the total for one calendar year. From this total, deduct 20 per cent. And multiply this amount by 25 years, which represents your lifespan. To be on the safer side, deduct your taxes from this amount. That would provide you with an exact estimate of how much money you I need to retire in 2024.

Reasons to Deduct 20 Percent

You might wonder why you should deduct 20 per cent from your monthly income and arrive at a smaller figure. That’s because after retiring, some of your expenses are likely to stop.

• Spending money on daily commutes is not necessary
• You have paid off your mortgage
• There’s no need to pay for a retirement plan
• You might have outlived life insurance and don’t need to pay any more
• Out-of-the-pocket expenses related to your work schedule aren’t necessary.

If we add these five amounts, they would most likely constitute about 20 per cent of your expenses or even more. This depends on the area you live, life insurance plans and mortgage.

Provide for Inflation

However, this 80 per cent of your annual income might now always be enough for retiring in 2024. That’s because of inflation, or what is also known as the Time Value of Money (TVM). 

If you’re unaware of inflation and TVM, I will explain in simple words.

Let’s consider that a basket of groceries costs you $100 today. However, the same basket would cost you $104.50 a year later. This happens because of inflation or an increase in living costs. The same grocery basket will cost you $110 or more the next year or 2023. 

This means the $40,000 that you save today has to grow by at least 4.5 per cent over a period of one year. That way, you could beat inflation to some extent and manage to match the Time Value of Money.

This means if you’re getting $3,333 per month now when you retire, this amount has to increase by at least 4.5 per cent per year as you go along living a retired life.

Income Matters for Retiring

What truly matters is your income during those golden years and not your retirement savings. That’s because the TVM calculation is not perfect. Inflation can rise to any extent. The figure of 4.5 per cent is only imaginary.

Therefore, if the inflation or TVM rises by six per cent, your monthly income has to be at least $3,333 plus an additional six per cent. And each year, the income should increase to help you overcome inflation and TVM.

In simple words, it means that you would have to invest your money in plans or other financial instruments that can fetch you more than 4.5 per cent per year and keep pace with inflation. Failure to keep pace with the TVM or inflation means you will continue getting and spending only $3,333 per month. This might force you to cut down costs and, often, in the most important places such as food.

Medical Expenses After Retirement

Out-of-pocket medical expenses are one more factor that you should actively consider while finding how much money you need to retire. Though you may have a medical plan to cover your expenses, these aren’t often sufficient.

On average, an American spends $1,225 per year on out-of-pocket medical expenses. The amount could go higher for those above 67 years of age. The Department of Health cites that over 10 years ago, in 2024, pocket medical expenses for those above 65 years of age stood at $1,215. Hence, you can imagine how much you would have to spend out of pocket on medical treatment.

Relocation After Retirement

To ensure that the existing money and income from investments are enough for at least 25 years, a lot of Americans relocate to other cities. They do so because housing and other expenses are much lower than in the places they currently reside.

However, to relocate, you would have to buy a second home or retirement home at one of the top destinations for retirees. This can provide some help in reducing your monthly bills and ensuring a happier life. In such cases, too, you might be able to sell your existing house and set aside the money to invest for your golden years.

Also Read: Top 10 Money Saving Tricks for Retirees

Calculate as a Couple for Retirement

One major thing that you need to consider is calculating your income after retirement and expenses as a couple. This is important regardless of the fact whether your spouse was also working or not.

If your spouse was working, obviously, they would also have a retirement plan, some Social Security benefits and a medical plan as well as some savings. If you combine all the income, the amount of money would add up to a larger sum. This means you can possibly manage your post-retirement expenses with two sources of income- your own and your spouse's income. 

However, the problem arises when your spouse isn’t working and your household needs to depend on a single source of income.

Also read:

• 10 Costliest Mistakes for Planning Retirement Financials
• Best Early Retirement Strategies
• How To Make Money In Retirement?

Larger Family and Income

During and after the Covid-19 pandemic, Americans see a new trend. A lot of millennials that once moved away from their parents are now moving back. This means millions of retirees are now living with at least one of their adult children.

If you have adult children that are working and living with you, it’s possible that you would require a little lesser money. That’s because the daughter or son would also contribute to your household expenses. However, this is not a permanent relief on your finances. Instead, this can prove temporary when the daughter or son moves away again. Therefore, keep the money you save separately and invest.

In Conclusion

The above calculations and other factors prove that no amount of money is too much if you want to retire in 2024. Hence, always aim for a higher figure of savings, investments and returns. The income matters during your days as a retiree and not the savings that you have right now.