How much do you need in your IRA or 401k to retire?

Overview

How much do you need in your IRA or 401k to retire? The Formula You Will Need.

Hosted by Mat Sorensen, bestselling author of The Self Directed IRA Handbook, and Aaron Halderman, COO of Directed IRA.

In this webinar, we will discuss:

  • Get clarity on your numbers.
  • Know how to create an actionable retirement plan.
  • Set yourself up for success in 2023.
Show More
Mat Sorensen

For whatever reason, everybody’s got like a million dollars in their head. If I just had a million dollars, I could retire at any age, guys, a million dollars is not going to cut it. Let’s assume conservatively here, you’re making four to 5% on your money, that’s 40 to 50 grand a year, Are you really going to retire off of 40 to 50 grand a year? As you get older life gets expensive, right? You got blood pressure medication, the guy’s got to worry about Viagra. And you need a jazzy scooter. I mean, Getting old is expensive. So what’s the real number you need to retire at any age? It’s 2.5 million, you got to at least have 2.5 million. I’m talking about investable assets. I’m not talking about equity in your home, you can’t use that in this number. So let’s break down why it’s 2.5 million and do the math. All right. Now let’s get into some math here. But don’t be scared. This is like fourth-grade level math, you got this. All right. The most common rule used to determine how much you need to retire is called the 4% rule. Under the 4% rule, you take the annual income you want to have at retirement and divide it by 4%. So for example, if you say I want to have $100,000 a year in retirement, you divide that by 4%. That gives you $2.5 million. That’s why I said 2.5 million. If you think 100,000 years is what you need to retire on 2.5 million, we’ll do it.

Now if you say, Man, I don’t want to retire off 100 grand, I’m not used to that level of income, I need a little bit more, okay, you want 200 grand a year, right? Then you better have 5 million, we’re gonna divide 200 grand by 4%, and that’s gonna give you 5 million. So you want to look at the income you want to have on retirement divided by 4%. That’s going to give you your starting number of what you need in investable assets. We’re not talking about equity in your home, we’re talking about investable assets that can produce you income. Now this formula presumes a couple of things, one, is that you’ll at least make 5% of your money. If 5% on your money, I can take out 4% a year to live off of and it’s still going to grow a little bit, I’m still going to have a little bit of growth. That helps me combat the I word inflation, which we’re all feeling, which makes my money a little more valuable over time, particularly if you’re like, oh, I want to retire when I’m 50 or 40 or something like that. Okay, well, we need to grow this nest egg to be more than 2.5 million, because $100,000 a year now is different than $100,000 a year in 20 years. So we need to take that into account in this formula. And there are a couple of other things you got to think about besides just the 4% rule. This is usually the point where someone’s going to ask but Matt, what about Social Security? Okay, so security, you want to count on that for retirement? Do you think it’s actually going to be there? And if it is, do you even know what the annual monthly Social Security check payment is right now? It’s 1500 bucks a month.

All right, what type of retirement Do you can have on 1500 bucks a month, I mean, the max, you get also security if you wait till you’re 70 is only four grand. I mean, that’s gonna be a pretty sad retirement, if that’s what you’re counting on. So sure this money is going to be there, I want you to know about it, think of those numbers. But don’t be counting on that as a number, you’re going to retire because it doesn’t even come until you’re 67. Now the other big expense, of course, is your housing expense. If you own your home and have it paid off, that’s a huge benefit in retirement, that’s usually one of the number one expenses everyone has in retirement. And that taking that off the table just really helps make it easier for you to retire off of your investable assets. Plus, owning your own home provides some equity in the later years. Now, maybe you do want to have a little bit richer retirement than just what you’re getting off of this number after taking into account the 4% rule. Okay, well, maybe I can take a reverse mortgage out of my home and draw out the equity in my home, maybe I can sell it at some point when I go into an assisted living center or some other type of place where I might go in my later and my golden years, so to speak. So taking into account those things, owning your home, also some social security, these are things later on, particularly in retirement that are very helpful. But first, remember, the 4% rule is going to drive the amount you need to retire and it takes into account the annual income you’ll need. And you can retire at any age using that formula because we’re not depleting the principle. All right now that was the easy part, of course, right?

Just a little division to get to the number that we have to retire on at any age. But the hard part, of course, is making this money, saving it, and learning how to invest it to get to that number. But you know what, we are all facing the same struggle. We all have the same burden and responsibility to take control of our retirement. No one should be more involved in your money than you because you want to have a retirement you’re not dreading want to have a retirement you’re looking forward to so take control of it.

Receive Updates About Upcoming Webinars

Subscribe to our newsletter for webinar updates

  • This field is for validation purposes and should be left unchanged.