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How Much Money Will I Need To Retire?

The big question everyone asks when they think about retiring is "How much money will I need to retire?" It's a tough question because everyone's needs, desires, and lifestyles are different. Their expectations are different too. So where does an investor begin? For me, I like to start with the US Census Bureau. I want to know what the average family has to live on so I'll know that in retirement I'll be able to live at least as well as the average American family.

According to new figures from the Census Bureau, inflation adjusted income for the median US household rose by just 0.3% in 2013. This means that the median household income increased $180 last year to $51,939. This is the amount I would need in order to live as well as that average American family and it's probably a good number to shoot for if you're thinking about retiring any time in the very near future.

Another item I look at is debt. I want zero debt going into retirement. If that's not possible, then I want to know what my debt servicing requirements are going to be. Whatever that debt service amount ends up being, I need to add that to the median income identified above so that after debt payments my income will still equal the median US household.

Next I examine the lifestyle of the average family and compare my lifestyle to that. If I expect a higher lifestyle than the average American family, I need to adjust my expected income needs upward. If I desire a somewhat lesser lifestyle I can adjust my income needs lower.

The final thing I do is look at the type of income I expect to receive in retirement. I need that income to increase over time at a rate equal to or greater than the rate of inflation in order to preserve my current purchasing power. If that's not possible then my income and lifestyle will soon get ravaged by inflation and I will slowly fall into a level of poverty that will eventually drive me back to the workforce. And that would be disastrous because there simply aren't very many well paying jobs for 70 and 80 year olds.

Over the years these ideas have provided me with the guidelines I've needed to determine when I'll be financially able to finally retire. I think they're pretty good guidelines and I hope they provide others something to think about too.