What does it take to “retire rich”? How much money do you need to be financially independent?
To answer those questions, you need to know what financial independence looks like for you. “Rich” is a vague term. Does it mean you want to be able to take one vacation a year later in life or do you want to be able to travel all the time? You must put some context behind the word. You need to know what your priorities are and what your goals are. Financial planning can certainly help with this, but if you are looking for some starting points, I have them for you.
How much should I have saved?
Most Americans don’t have enough money saved for retirement. But how much is enough? One rule of thumb says that you may need 70%-80% of your current income per year in retirement. It’s a good place to start but a question to ask your self is do I want to be able to spend more or less than I currently do? If the answer is greater, then you will need more for retirement.
But is what you have saved enough? The 4% rule can be a good place to start. This rule says that you can withdraw 4% of your savings each year to live off during retirement. However, it too is just a general rule of thumb. A lot of factors can play into that such as lifestyle expenses in retirement, market returns or even major life changes in retirement such as health issues.
The other thing you could look to is an online calculator. There are many simple ones out there. They won’t give you as good of a picture as a professional can, but you can play with the factors to learn what kind of an impact things will have. Social Security may be a factor for many Millennials, because it will probably look very different by the time we reach full retirement age.
How do I save more?
If you did some of the work above and figured out how much you need to have saved for retirement, then you probably realized you need to save more. The best way to do that is to start early. If you are a young Millennial and have some income available for it, start putting money into that 401(k) now. The power of compounding is on your side. Here is a good primer on the power of compounding. If you are an older Millennial, then you still have time on your side, but you should get started. Everyone has priorities, but don’t neglect the ones that seem far away for sooner ones that truly may be less important.
If you are a freelancer or part of the gig-economy, then I understand that it may be harder to save for retirement. You should still try to find ways to prioritize saving for the future. There are plenty of options out there to save any amount.
Also, there is the old standby of taking a closer look at the budget and seeing where you can cut costs. It may not be as fun, but a little here and there can make a difference. Bring lunch from home, ride a bike to work, go easy on the night out or any number of things from this Mic.com list. It doesn’t have to be complicated but look for the little changes to make in your life to secure your future.