How much money do I need to retire?
Everyone’s journey to retirement is different. Are you traveling light or with a full bag?
Retirement may be one of the wonderful stages of life that many people long for. But how to turn dreams into reality? Everyone's retirement path is unique, either according to expected plans or with unexpected opportunities, and the scenery is different for each person. Are you traveling light or with a full bag? What mood do you have and what longing do you have?
Planning for retirement starts with asking questions
提到退休，最常聽見的疑問是—我需要多少錢才能退休？其實這涉及退休前的財務規劃， 與退休後的生活型態，需要多方考量。要得到答案，需要追加以下問題：何 時退休？在哪裡退休？想要怎樣的生活？可預期的收入與開支？有甚麼開源節流的方法？ 根據美國員工福利研究所（Employee Benefit Research Institute, www.ebri.org） 2021年的一項調查，儘管已接近退休年齡， 年齡在55歲或以上的工作者中，只有60%的人曾為退休後的生活型態做開支及儲蓄預算（見下圖）。
According to the Bureau of Labor Statistics, Americans retire on average about 20 years. About half of Americans plan ahead for their retirement needs, and among employees who are eligible to participate in retirement savings such as 401(k), more than a quarter choose not to participate. As you can see from these survey numbers, not everyone plans ahead to prepare for retirement.
In any savings and investment, "time" is an important factor. Either prepare in advance, or postpone retirement, so that the power of compound interest over time can increase assets to provide for life needs after retirement. However, no matter how you plan to retire, "stewardship" is the key. Make an honest inventory of the resources at hand, understand various investment and savings tools, make practical plans and implement them accurately. I hope that no matter when you and I retire, our lives will not be in embarrassment and we will still have enough room to use the money, physical strength, experience, knowledge, talents, etc. given by God to bless others.
Having been engaged in financial management for many years, I have heard that many people desire to achieve so-called financial freedom. Preparation is necessary, but life is like the ups and downs of the stock market. Even if you can observe trends and make wise judgments as much as possible, it is still difficult to predict any emergencies. Therefore, when making any plans, you must still believe that God is in control of everything; no matter what stage of life you are in, faith is the axis of your walk with God.
What kind of retirement life do you want to have?
Since everyone’s requirements for retirement life are different and may change over time, when planning retirement life, it is recommended to start by thinking about the following points:
What expenses will you have after retirement? This includes daily necessary expenses such as food, clothing, housing, transportation, insurance, medical care, taxes, etc., as well as non-essential expenses such as eating out and traveling. You also need to prepare emergency funds. Don’t forget that as you age, your medical and long-term care expenses will be higher than they are now. Retirement financial management still requires controlling risks, such as investment, inflation, longevity, taxes, etc., which will all affect expenditures. Everyone's budget will be different, so it's a good idea to analyze your spending before setting a savings goal.
What income will there be after retirement - this includes pensions, savings, investment income, social security benefits (referred to as Social Security), national pension, etc. To reduce risk, you may need to adjust your investment approach after retirement. However, generally risk is directly proportional to the rate of return, so the profit from investment cannot be overestimated at this stage.
Experts estimate that if you do not want to change your living standard, you need to prepare a monthly pre-retirement income of 70% to 90%. Make conservative and pragmatic calculations of income and expenses, evaluate whether it is enough to maintain the lifestyle you want, and then think about how to increase revenue, reduce expenditure, or delay retirement. You can also consider working on projects or part-time jobs after retirement to increase your main focus. , passive income, on the one hand, maintaining connection with the profession and society.
Someone once said that you must have $1 million in savings to achieve financial freedom in retirement. My opinion is that the amount of savings required will vary depending on your "retirement lifestyle". As for where to live after retirement, real estate taxes and commodity prices in big cities may be higher than in small cities. However, big cities have more opportunities to participate in cultural and artistic activities. Small cities may not be as prosperous, but there may be more interactions and connections between communities and neighbors. What if you have a history of chronic disease? Proximity to a medical center may be required. Like to travel? Check to see if there are accessible roads, public transportation systems, or airports with frequent flights nearby. Some states in the United States have no state income tax, such as Florida, Texas, Nevada, etc., which are also worthy of inclusion.
(Image source: https://www.freepik.com/free-photo/family-bonding-casual-affection-relationship)
How to calculate retirement needs?
After planning in advance and making actual calculations, it is very likely that you will need to adjust your current savings methods or change your expectations for retirement life. A 2021 survey found that 89% people who are trying to understand their financial future are more confident in financial security. Here are several methods to estimate for your reference.
1. Simple 3-step calculation required for retirement
- Calculate future expenses。各樣可能的花費明細列表，預估退休生活所需。
- Calculate current assets. Add up your savings, investments, home value (equity minus loans), etc., and you have today’s assets. Use your assets to estimate how much cash flow you can generate in retirement, and try not to have any debt.
- Calculate future income. Such as pensions, social security benefits, and other savings and investment income cashed out after retirement. This number is compared to future expenses to give you an idea of how much money you will need to "break even" in retirement.
假設夫妻需要每月8,000美元退休開銷， 二人每月預期各得到$1,500的社安福利金， 其中一位每月還能有$1,000的養老金。這意味著在每月$8,000的收入需求中，$4,000 ($1,500×2人+ $1,000)來自穩定收入，剩餘的 $4,000需來自儲蓄和投資等等。
二、4% 規則 （註）
公式：年支出除以4%=月支出；月支出x300月這是經驗法則，限制每年從退休帳戶提取的金額不超過退休第一年帳戶總金額的4%，每年提取相同金額。目的是在正常壽命的預期下有足夠的現金流支付所需。然而在目前高通膨或投資報酬不佳的情況下，可能需要降低支出或是預備額外現金，作為緩衝，避免在市場低迷時提取更多資金。（請參考本刊75期文章〈為霞尚滿天〉，閱讀更詳細介紹。）
3. Income replacement rate of 45%
A survey by financial services company Fidelity suggested that in order to maintain a lifestyle similar to that of the ten years before retirement, a replacement target of 45% of annual pre-retirement income should be sufficient.
Assuming that the annual salary is US$100,000 at the age of 65, based on the income replacement rate of 45%, the annual living expenses will be $45,000. Based on an average retirement life of 20 years, you may need to prepare $900,000 (45,000 × 20 years).
To achieve this goal, Fidelity recommends age-based savings goals (see chart below):
Starting to save at the age of 25 and investing 15% of annual income (parameter X = annual income × 15%) in an age-appropriate portfolio of stocks and bonds should be able to achieve these goals. Generally speaking, you can actively invest in stocks when you are young; as you get closer to retirement, you need to turn to bonds and cash with less risk, in order to increase the stability of your investment portfolio.
Fidelity recommends saving ten times X by age 67.
Fidelity estimates that, in addition to Social Security benefits, savings would be enough to replace at least $451 of pre-retirement income.
Based on my own professional knowledge and years of experience, I recommend that readers save at least 15% of pre-tax income (including any employer match) every year during their working life, so that retirement life will not put excessive financial pressure. This may seem like a lot, but includes all retirement savings in different accounts, as well as any employer contributions. Even if you can't hit this percentage every year, don't stress. As long as you persist and have perseverance, there is always a way to catch up. Don’t think that it’s too early to retire just because you are young. There are still many expenses and burdens. You can wait until your income is higher, your children grow up, and the mortgage is paid off before you make preparations. Including retirement savings in your budget and preparing in a disciplined manner is the long-term solution.
Every journey should start with a destination, and retirement should be no different. Knowing your retirement goals makes it easier to determine whether you are on the right path, know how to adjust the direction or pace, and continue to monitor it.
Learn about social welfare resources
Different countries offer different levels of social security benefits, which must be taken into consideration when it comes to retirement. In the United States, Social Security may cover 40% of a retired beneficiary’s pre-retirement income. However, the amount of wages that Social Security can replace varies depending on income and the age at which benefits begin. Use the retirement estimator on the Social Security Administration's website to get an estimate.
The average retirement age in the United States is about 65 for men and 63 for women. You can start receiving Social Security benefits at 62. Between the ages of 62 and 70, monthly benefits can increase by 8% for each delay in claiming benefits. Postponing collections also extends the period over which your retirement savings can grow.
The age at which you stop working affects your social welfare benefit; it also affects other retirement guideline values—the savings rate, the savings factor and the sustainable withdrawal rate. Even if you cannot determine how much income you may need in retirement, you may need to use the age 62 guideline if you plan to retire early. Otherwise the 70-year-old guideline may be more appropriate.
The decision of when to retire does not need to be solely based on whether you can receive more Social Security benefits. After all, human physical and mental capabilities are limited. Even if you receive less social security benefits, isn’t it okay to retire while your body and mind are still strong and use your talents, knowledge, and experience outside of the workplace, such as family, church, community, and mission field? Be a good steward of God’s manifold gifts?
Start early and stay disciplined
God is in control of everything and provides abundantly for our daily needs. Therefore, when it comes to retirement life, why not adopt a kind, loyal, and knowledgeable stewardship mentality, and prepare early with wisdom and discipline? Many calculation methods and financial management knowledge can help us make good decisions. Even if there are many unknowable variables, the most important thing is to start early, develop a feasible budget, and stick to the savings plan.
Proverbs 30:25 describes ants as powerless creatures who prepare food in the summer. The book of wisdom reminds us: Saving is a good habit with foresight and responsibility for yourself and your family. If finances allow, start small and try to increase your monthly savings. The sooner you start, the more time you have to add value. For most people, retirement is a matter of time, so it’s best to put retirement savings in your budget and stick to it with discipline.
Financial security for retirement requires diligent planning. This not only means learning more about saving and investing, but it can also include seeking professional assistance from a financial advisor. But a plan is an ideal, and to put it into practice requires another virtue of good stewardship—to start living within your means from now on. Money may bring daily comforts, but is a luxurious lifestyle a true use of the abundance God has given us?
我曾在文章中寫道：生活經過「斷捨離」的整理，會發現「簡單就是美」，不再從有形的物質中尋求安全、滿足，而從心與靈體會「不致缺乏」，和「一樣好處都不缺」。（參考本刊70期〈理心、理家、理財〉. )
How much money do you need to save for retirement? I can't give you an exact number, I can only provide an estimate and encourage readers to plan, save, live within their means, and be content with what they have. The God we believe in provides our daily needs and gives us enough grace; Jehovah Jireh - He will provide; He is the center of our lives and lives.
May we seek first His kingdom and His righteousness, receive God’s provision with a grateful heart, and believe that He will do more than we ask or imagine.
Note: The Trinity Study 4% rule, please refer to the relevant Chinese introduction.
Extend⬩⬩read⬩read
- 美國勞動局的雇員福利保障局（Employee Benefit Security Administration，簡稱EBSA）發表一系列關於健康、退休等福利的文章，有繁、簡中文版。請上網站：https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications.
- 美國國稅局（Internal Revenue Service, IRS）專文（中文）介紹越早開始為退休儲蓄，越能得到複利帶來的益處。請參考https://www.irs.gov/pub/irs-pdf/p4118zht.pdf.
Xu An (Annie), MBA, university finance lecturer, has worked in international financial institutions from customer service, product, marketing to business supervisor, with more than 20 years of wealth management practical and teaching experience. Currently, he is a partner of Boston Angel Fund and a gospel volunteer.
Read more:
When church and community join forces
Vision and Mission Seen from Father’s Love
The sky is full of clouds: Planning for retirement
Increase wealth with stewardship
Gifts and Resources Converge in Boston
It's a relationship, not a religion
