There's a simple calculation to determine how much you need to have saved before you can retire
Retirement can be an endless summer.
If Saturday beach trips and golf games have you dreaming about walking away from your 9-to-5 for good, there's a simple way to calculate how much you need to save to make it happen:
Your desired retirement income ÷ 4% = How much money you need to retire
For example, if your perfect retirement salary is $80,000, divide it by 4% and you get $2,000,000. That's your magic retirement number, and you can call it quits as soon as your account balances hit it — even if you're only 28.
Take a look at the chart below to see how much you need to save to fund retirement income ranging from $40,000 a year to $250,000 a year.
Here's why this works: If you have enough saved up, you should be able to withdraw 4% each year to pay for your living expenses in retirement. Using the 4% withdrawal strategy requires earning at least a 5% investment return annually (after taxes and inflation) on your retirement savings.
Keeping all your savings in cash won't do the trick — investing is the real key to make sure you don't run out of money in retirement.