Retiring early is always an option, but you have to make sure that you have saved enough to quit your job and live peacefully on your retirement funds. Thats where you might be wondering what is your retirement number. To help you figure it out, we have written this detailed guide on everything you need to know about your retirement number that can help you with planning your retirement funds.

What is Your Retirement Number?

Your Retirement Number is the amount of money you need to collect as your retirement funds to quit your job. The most effective way to calculate your retirement number is by following the 4% rule. The 4% rule is a common way to weigh your retirement funds for stable financial independence.

According to the 4% rule, a balanced portfolio of expenditures and income should support yearly withdrawals of 4% or less from your account in ideal cases. In simple words, when you have collected 25 times your total yearly income in your bank account, you can quit your job and retire peacefully.

For example, if you spend over $40,000 per year, then your retirement number 25 times according to the 4% rule would be 1 million dollars. Even though its a very simple yet effective formula, you still have to calculate how you are going to spend all your retirement funds by the end of your job.

How to Figure Out Your Retirement Number?

Expenditures are unpredictable most of the time, and since you have a fixed retirement number, you have to follow a financial plan. Therefore, we have shared some methods below that will help you manage your retirement finances.

Track Your Expenditures

Your monthly or yearly expenditures during retirement may not be the same as what you are spending today. Still, you should start by calculating your current and estimated future expenses after retirement. Consider all the data you have, including bills and spending on special occasions, and leave some room for unexpected expenses as well.

Once you have the number that would cover your lifestyle, you can include or exclude any expenditures that you think would make a difference. If you make payments online, you can easily keep track of your expenditures with the help of digital receipts and statements. If you already spend under a budget, then it would be more helpful to calculate your expenses on a yearly or monthly basis.

Include or Exclude Expenses in Retirement Number

Once you have figured out your average spending habits, the next important thing is to consider the unexpected or additional expenditures. These are the expenditures that you may have to spend after retirement, and they will be different from your current expenditures. We recommend not relying on the average as the expenditures can increase or decrease after retirement.

So here are the most important factors to consider while including or excluding any expenses from your retirement number.

Change in Lifestyle

After retirement, your lifestyle expenses will change drastically, and that is the first thing to consider when calculating your retirement funds. If you spend on a budget or if you generally spend less on everyday necessities like clothing or food, then it wouldnt make much of a difference after retirement.

However, if you are planning to enhance your lifestyle after retirement, like buying a car or a property, then it would surely eat a big chunk of your retirement funds. The calculation of lifestyle expenses and retirement funds can also vary on your yearly income. So, make sure to use a realistic number while calculating lifestyle expenses.

Additional Obligations

The lifestyle after retirement surely comes with obligations that are quite expensive to cover. The example can be taken from the following areas:

• Mortgage Loans: Mortgages cost a major chunk of the expense of any American citizens budget. It is best to pay off your mortgage loans before retiring. Otherwise, you may have to consider them while spending your retirement funds.
• Family Care: Most of the time, there is a burden to support your family members financially when you retire. Based on the age of your family members, you may have to pay for tuition fees or your parents long-term care after retirement.

In addition to the above-mentioned factors, you also have to consider any other long-term obligations. These expenditures would carry for a long term while costing a major chunk of your retirement funds.

Healthcare

Healthcare expenditures are the definite costs that you have to consider when calculating your retirement number. As an American citizen, you wont have the facility of Medicare until the age of 65. So, if you retire before the age of 65, then you may have to cover your own medical expenses out of the retirement funds.

Even if you are eligible for Medicare after the age of 65, you still may have to pay the expensive premiums. As per statistics, healthcare expenses only increase each day. So, make sure to carefully consider medical expenditures when calculating your retirement number.

Other Income Resources

While calculating your retirement number, you should also consider your income from other helpful resources. If you have any investments that provide you with a steady income on a regular basis, then you are good to go. Otherwise, you can consider the following sources of income after retirement:

Social Security

Your Social Security funds might reduce after retirement, but they wont discontinue completely. On average, you may receive up to $1600 per month of social security funds after retirement.

Pension Funds

If you are fortunate enough to have a defined contribution plan after retirement, then it would definitely help you in the long term. Pension funds can significantly help with your expenditures, so make sure to consider them when you make your retirement number.

Conclusion

Retirement is the one common goal shared by the working class across the country, but the conditions and the duration of work vary depending on various factors. The most important factor in retirement is the amount of money people save as retirement funds or spend peacefully. We hope this article has helped you understand your retirement number and how you can calculate it.