Want to retire? Want to be Financially Independent, Retiring Early (FIRE)?

The rule of thumb is to grow your investments until it equals 25x of your expenses. This is also known as the 4% rule: meaning, many experts believe that you can safely withdraw 4% of your investments each year. This was supported by a piece of research known as the Trinity Study.

Use the retirement calculator above to determine when your invested income might reach the necessary level.

What is the purpose of saving for retirement?

During your working years, you’ll likely be paid bi-weekly or monthly. But when you reach retirement age, you will stop working. When you stop working, your income will also stop, unless you have a healthy amount of retirement savings.

Many people retire in their mid-60s but often live until they are 80 or older. Within those 20+ years, you will need enough money to support your lifestyle, which usually means that you want your retirement “income” to be somewhat close to what your salary was when working.

By saving diligently as early on as possible, you can invest your savings in different ways, grow your accounts, and hopefully have enough to support yourself through retirement. If you want to maintain your quality of life, a good retirement savings strategy is critical.

How do I use the retirement calculator above?

It can be incredibly difficult to know how much you need to save for retirement, but the retirement calculator above can help you figure it out. All you have to do is input the details, such as your yearly income, how much you have saved, and what you want your retirement income to be, then let the calculator do the rest.

This retirement calculator is meant to serve as a helpful tool in your planning process. It cannot predict the future or determine how the markets will look in 20+ years. However, it is a helpful way to determine if you are on the right track with your retirement savings.

How much retirement savings should I have by 40?

There is no “one-size-fits-all” when it comes to retirement savings, but there are a few helpful benchmarks to keep an eye on. Fidelity recommends that individuals save 15% of their annual salary starting at age 25. Using this logic, you should aim to reach the below targets:

  • Save 1x your annual salary by age 30
  • Save 3x your annual salary by age 40
  • Save 6x your annual salary by age 50
  • Save 8x your annual salary by age 60
  • Save 10x your annual salary by age 67

Source: Fidelity.

If you feel like you’re behind, the best thing to do is set up a retirement savings strategy and make it a priority now – don’t wait. The amount each person needs in retirement will be impacted by many different variables, but this approach is a great way for most people to start working towards a comfortable retirement.

Are retirement savings taxed?

When it comes to taxes, your retirement savings will act a bit differently than most other savings or investment accounts. With traditional retirement accounts such as an IRA or 401(k), you do not pay taxes when you put the money in the account. Instead, when you withdraw the money during retirement, you will face income taxes on your monthly withdrawals.

In some situations, with a Roth IRA, for instance, you pay taxes on the amount you save. Then, when you withdraw the money years later, you can do so tax-free.

 For younger individuals who are further away from retirement, a Roth IRA is a great option. It is assumed that you make less money now than you will when you’re older, so the tax rate you pay will be lower, making it a very preferable retirement savings method.

What is the rule of 80 for retirement?

In the United States, many people who work for the government will be able to retire when their age plus their years of service equals 80. This “rule of 80” is what government entities use to determine if someone is eligible for retirement. This concept will not apply to you unless you have served government agencies throughout your career.

How can I be sure that I will have enough money saved for retirement?

The amount of money you’ll need for retirement will depend on many factors, some of which are outside your control. These factors consist of:

  • Market conditions
  • Your lifespan
  • Health challenges
  • Lifestyle

A good rule of thumb is called “the 4% rule.” Using this concept, take your desired annual retirement income and divide it by 4%. If you want to have $75,000 every year of retirement, do 75,000/0.04 to get a target of $1,875,000. You should have just over $1.8 million saved prior to retirement if you want to have a lifestyle supported by $75,000 annually.

The 4% rule assumes that you will live about 30 more years after you retire. If you live much longer, you’ll need to save more money or reduce your annual retirement income. This rule also does not factor in medical expenses or other unexpected costs.

What is the FIRE (Financially Independent, Retire Early) movement?

You have probably heard of the “FIRE movement” which is led by a group of younger individuals that want to comfortably retire before they hit a normal retirement age range. These individuals have to invest wisely and grow their nest egg enough to retire, but it’s possible.

Since the FIRE movement is full of younger individuals, the planning gets even more complex. Instead of assuming that you will live 30 more years after retirement, you have to assume that you will live 50+ years after you retire, depending on your personal situation. Successfully retiring early is possible, but it takes a lot of planning, saving, and hard work.

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