That’s the 1 Million dollar question, literally… And the one most often asked with the expectation that the answer will give us a good deal of assurance. How much you need to save for retirement is however a more difficult question than most people realizes and on top of that it is a bit of a moving target.

This article aims to give you some methods to give you an idea of how much is needed. You need to understand however that the amount you calculate to this year might be different next year. The aim is therefore for you to understand about how much are needed and what the influences are that can change that.

First, some rules of thumb to indicate how much are needed. These are different ways to get to a rough estimate of what you will need:
1. If you were to retire today, you would typically need around 75% of your salary to continue living on the same standards. This is also with the assumption that by retirement you will have your property and vehicles paid off. It is incredibly detrimental if you were to continue into your retirement with debts – effectively you cannot go on retirement while you still have debt!
Projecting to your future retirement day, you would ideally want to retire with 75% of your last salary and no more debt. The question then becomes easier to work out how much you need in total to retire at that level: basically what amount of invested money will give you 75% of your salary as pay-out?

2. If you currently need $10 000 per month to get around on, you will need about $2 000 000 in your savings amount, in a 5% rent bearing bank account, to produce roughly that amount per month. You actually need quite a bit more since a 4 to 6% average inflation rate will erode your income each year. This means you will effectively get out less money each year since your $2 000 000 is not growing anymore more while you are living from it.

3. Roughly 20 times your last year’s salary. To bring that into relation today, multiply your year’s salary of now with 20. That is indeed a lot and that number is a lot more if its future value is calculated for your planned retirement date.

The above points should give you a rough idea of how much is needed. Relating it to current values and amount give a good idea of how much is needed, but keep in mind that inflation over the years will mean that the future value needed will be much more. Also, as you become older your salary will probably increase and with that your standard of living, which you probably would like to continue once you retire. As you can see, the amount needed to retire is quite large and it is a moving target.
Not knowing how much you need to retire causes financial anxiety. Who understands the financial advisor? Consistent contributions make your retirement pay-out predictable and reassuring.

With the above rough estimates of how much you need and with the retirement calculator, you can get a good idea of how much is needed once you retire and how much is needed to get there. It might be that the end amount is out of your reach, but for the amount of contributions you can make each month you will get an idea with how much you will be able to retire on.