Before we get into HOW you might be able to save $4 million by the time you retire, let’s back up and determine this:
Do you NEED to save $4 million for retirement?
The amount of money needed for retirement is different for everyone. For example, some people have pensions, which means they have a guaranteed income source when they retire. This most likely means that you won’t personally need to save as much for retirement to replace your pre-retirement income. (Unfortunately, pensions are quickly becoming a thing of the past. The younger you are, the greater the chances that you don’t have a pension.)
As with all financial planning, it’s most important to determine what the right plan is for YOU.
When we work with a client, we take a top-down approach to planning. Here are a few things we look at:
- How much are you spending today?
- Are there expenses that you will be reducing in retirement (such as those related to your children)?
- Will you be carrying a mortgage?
- Do you want to travel in retirement?
We also take a look at medical expenses, purchasing a vehicle every so often, and where you will be living. And last but certainly not least, we look at tax strategies.
What if youwantto save $4 million for retirement?
When you hear a big number like $4 million, it can be intimidating. It also depends on your starting point – the younger you start the better. Your investment return is also important in calculating number. Here are a couple examples:
Age 30 retiring at 65 with 8% return would need to save $1,743 per month.
Age 30 retiring at 65 with 4% return would need to save $4,378 per month.
If you waited just ten years…
Age 40 retiring at 65 with 8% return would need to save $4,206 per month.
Don’t panic.
If this seems unattainable, start with what you can today and increase your contribution every time you get apay increaseor come into some unexpected money.
Remember that financial planning is a unique journey for everyone; you might not need that $4 million. This is why it’s important to discuss your future and your options with an impartial third party who can help you make the right decisions.
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