How much $ do I need to retire? | Teachers Talk Money

Hey reader,

I believe that thinking about the concept of retirement, and determining and estimate for the amount of money you need, is an important financial step, even for those who are nowhere near wanting or needing to retire. Planning for retirement is something that should start at the beginning of our careers, because the earlier we start investing, the more our money will grow because of how compound interest works.

However, most people put off thinking about retirement for years, convincing themselves that because it’s so far out, they won’t have to worry about it. This is a mistake. But it’s an even bigger mistake to not invest later in life because you’ve convinced yourself it’s too late. The best and most logical thing you can do, no matter where you are in your career, is start planning for retirement today.

As you guys know, I’m 24 years old. I hope to work as a teacher for many more years, and even when I someday decide to leave teaching, I think I’ll always be working in some capacity. That might be moving to a career related to education like teaching at the college level, moving to a new career field entirely, or moving to a part-time schedule, or simply making a shift to self-employment.

But even knowing this, I still have the goal of financial independence and early retirement (from traditional work) on my mind. I also have a general estimate of when I will be officially financially independent and able to leave traditional work. 

So how on earth can you determine an estimate for how much you’ll need to retire? And how do you translate that into an estimated age?

Many people, especially those who are on a path to retire early, use something called the 4% rule– a highly simple rule that states that if you withdraw 4% of your investment portfolio per year, you should never run out of money, because the average amount of interest you’ll earn in the year with make up for the losses. 

When you use the rule in reverse, it’s insanely simple math. You just take your annual expenses and multiply by 25.

You can find your annual expenses by adding up your expenses from your budget. If you don’t have a budget yet, grab my free template and get started now.

For example, my annual expenses are around $25,000 per year. If I multiply that by 25, I see that I would only need $625,000 to retire using the 4% rule.

Now, I believe that purely using the 4% rule and nothing more could be a big mistake depending on your circumstances. For example, I live in the United States, where my healthcare is tied to traditional employment, something I won’t have if I retire from traditional work. Therefore, while the 4% withdrawal rate might still suffice, my medical expenses will make my expenses much higher whenever I decide to leave the workforce. The average cost of individual health insurance in the US is $456/month, meaning my yearly expenses would shoot up from $25,000 per year to about $30,500. This would make my goal retirement number increase by $137,000 dollars.

It’s also important to think about how you really want your life to look by the time you retire. Will you go from childfree to having kids? Will you go from having children in the house to being an empty-nester? Are there big expenses (like more pricey travel, pursuing more education, supporting a family member, or anything else) that would change your yearly expenses? How much do you expect your lifestyle will inflate?

All of these things are critical to take into consideration, so look at each of your expenses individually to get your new number. Once you have your number, if you’re a math nerd, you can go find a compound interest formula to figure out how long it’ll take you to retire, but for the rest of us, here’s a fantastic early retirement calculator you can use to play around with the numbers and get an estimated age.

If you want to see me play around with my own retirement number using the above calculator, click on the video above.

🙂 Rachel

P.S.

Want more guidance with how to save and invest in order to be able to retire from traditional work someday? Get my Money Map Workbook.

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