How Much Do You Need To Save For Retirement
According to new data by Northwestern Mutual, nearly eight in 10 (78%) Americans are “extremely” or “somewhat” concerned about affording a comfortable retirement while two-thirds believe there is some likelihood of outliving retirement savings. These fears are for good reason. One in five Americans (21%) have no retirement savings at all and another 10 percent have less than $5,000 put away. This means that about a third of all Americans have only a few thousand dollars saved for retirement.
Some people are more prepared. A quarter report having saved $200,000 or more stashed away, while 16 percent have between $75,000 and $199,999. While this not considered enough money to retire on in the United States, coupled with Social Security, you can fare quite nicely in one of the countries I will name very shortly. Experts typically recommend trying to accumulate at least $1 million in retirement savings.
Before I get to the countries where you can retire comfortably on $200,000 a year, let me tell show you how retiring with only $200,000 invested is feasible.
Sustainable Withdrawal Rate
The typical rule of thumb admonished by financial advisors is to withdraw no more than 4% to 5% of your savings in the first year of retirement, then adjust the amount every year by inflation. This withdrawal philosophy of only withdrawing 4% to 5% of your retirement savings is often referred to as the sustainable withdrawal rate. The sustainable withdrawal rate is the estimated percentage of savings you are able to withdraw each year throughout retirement without running out of money.
Use this Savings Withdrawal Calculator to see how the 4% to 5% withdrawal rule of thumb works.
Let’s assume that you retire today and plan to spend 30 years in retirement. The average annual interest rate you expect to earn is 7%. The average annual inflation rate is 2%. You have $200,000 invested in a 401k account or Roth IRA. Let’s also assume that you plan to withdrawal 5% of the annual beginning balance each year at the beginning of the year. Based on the calculator, you will be able to withdrawal no less than $10,000 each year and still have $326,777 left at the end of 30 years. Not a lot of money to live on each year alone, but you can still expect social security benefits.
Add Your Social Security Benefit
Even though Social Security is in trouble if action is not taken now try to fix the problem, it doesn’t mean that no benefit payments will stop suddenly. If you expect to retire in the next few years you can expect to receive the average retirement benefit.
Based on a 2017 article posted on The Motley Fool, the average person who signed up for retirement benefits in the past year was awarded $1,413.08 per month in benefits, on average. In the period, 1.4 million women filed for Social Security benefits, and their average award was $1,231.50. Men, however, were awarded $1,583.77, on average.
Therefore, a retired couple, on average, with only Social Security income can expect benefits totaling $2,644.50 per month or $31,734.96 per year. That’s not a lot of money to retire on in the United States, but it is more than enough to live on 8 countries listed below.
Using the example above, on average, a single man with only $200,000 in retirement savings can expect to receive between $2,416 and $2,922 each month for 30 years and still have.
This monthly income is more than enough to live on if you live in one of the eight countries listed below.
So if saving $1 million for retirement is unreachable, consider trying to save at least $200,000. But, what if you have only $100,000 saved?
How long would it take before your investment to grow to $200,000 at a given annual rate of return?
Luckily, you don’t need a financial calculator to figure this out.
The Rule of 72
The rule of 72 is a quick and easy way (instead of using financial calculators and spreadsheets that are more accurate) to estimate the number of years required to double that amount of money you invest at a given annual rate of return. The rule of 72 is useful for quick mental calculations to come up with an approximate value. Additionally, it can compute the annual rate of compounded return for an investment given how many years it will take to double the investment.
Formula for Rule of 72
The formula for ‘Rule of 72’ is a one-step division:
Years required to double investment = 72 divided by compound annual interest rate
For example, if an investment scheme promises 7 percent annual compounded rate of return, it will take approximately (72 / 7) = 10 years to double the invested money. Note that a compound annual return of 7 percent is plugged into the equation at 8, not at 0.08, giving a result of 10 years (and not 1,028 years).
Countries Where You Can Retire With Only $200,000
- Ecuador
According to Numbeo, monthly expenses for a person is $498.46.
- Nicaragua
Cost of living in Nicaragua is over 72% lower than that of New York City, according to Expstitan.
- Thailand
According to Numbeo, monthly expense for a person is $554.
- Belize
Monthly expenses could start from $1,619 according to International Living.
- Panama
According to Numbeo, monthly expenses for one person is $720.
- Costa Rica
According to Numbeo, monthly expenses for one person add up to $666.
- Malaysia
According to Numbeo, a single person could spend $452 in monthly expenses.
- Spain
According to Numbeo, one person could live in Madrid for $694 a month.