At some point, all of us have dreamed of retirement. However you define retirement, the big question is your retirement age. When do you know when the stars are aligned and all the factors are in place for you to call it a career? Here’s a quick primer on how to figure out your retirement age.
- The first and most important factor in figuring your retirement age is money. If you’re not going to be bringing in an income, then you’d better be sure you have enough in the bank to live on. Start by calculating your current household income. Your retirement income should be at least 80% of what you’re currently living on. If your current income is $100,000, then to figure your retirement age income, multiply 100,000 by .8 and you will arrive at $80,000. Of course, this is an estimate that does not factor in inflation. But it gives you a rough idea of the minimum income you will need when figuring your retirement age.
- Now that you know how much you will need to live on, to figure your retirement age, you need to know how much you will need to save to reach that goal. Start by summing up your current savings. This includes everything you have in stocks and savings accounts. Do not factor in your checking account, because this is money you usually use to pay current expenses. This figure will give you an idea of how much more you will need to save to have enough principle to retire on comfortably.
- Your principle will be the base upon which you will draw your retirement income. Therefore, the principle itself must be large enough to bring you the minimum of $80,000 you will need annually. This income will come from interest and dividends you receive from the principle. Assuming a conservative return of 5% a year, figuring your retirement age means assuming a principle of about $1.6 million.
- Finally, knowing your current savings and how much you will need as principle when you reach your retirement age, subtract the current principle from the projected principle. This will give you the amount you need to save in order to retire. Divide this figure by the amount you save annually, add the quotient to your current age, and you will be able to figure your retirement age.