Are You On Track To Be Broke or Financially Free in Retirement?

Are You On Track To Be Broke or Financially Free in Retirement?

According to a study done by the Social Security Administrative office, if you take 100 people and follow them through retirement:

  • 1 will be wealthy
  • 4 will be financially secure
  • 5 will continue working because they have to, not because they want to
  • 36 will be dead
  • 54 will be dead broke and depending on the social security checks, relatives, friends and charity to maintain a minimum standard of living

Now, let’s exclude the dead people because for whatever reason, they can’t help that they’re dead. I want to focus on what happened to the remaining 64 people who lived.

Out of the new sample group of 64 people, only 5 people (8%) are wealthy and financially secure. The remaining 92% of the group is broke and working out of obligation in retirement. Yikes.

Do you know which group you’ll end up in? The 8% of people enjoying their life in retirement and financially set or with the group of 92% of retirees unhappy and broke?

Just take a look at the retirees you know in your life now. Are a majority of them working out of obligation? Are they retired and stressed out over money? Or are they happy living life without worrying about money? Do you personally know any retirees who are financially secure?

What would it take for you to be financially secure?

I recently discussed the idea of the 25x retirement rule in the private JourneyToLaunch Facebook group.

How much money will you need in retirement?

Here’s how the 25x retirement rule works. To get a general sense of how much money you will need in retirement, take your current annual expenses and multiply it by 25.

This benchmark is based on a 4% withdrawal rate, meaning that if you have 25x worth your annual expenses saved in your retirement accounts, you will be able to support your desired lifestyle by withdrawing 4% from your investments every year in retirement without running out of money.

For example, if you currently spend $75,000 a year, you would need about $1,875,000 saved in your retirement accounts in order to retire comfortably ($75,000 X 25).

If your annual expenses are $40,000, you would need about $1,000,000 ($40,000 X 25) in your retirement accounts.

The key takeaway is that your current annual expenses have a direct correlation to how much you will need to retire comfortably.

If you want to join the elite 8% of people who will be financially secure, here’s what you can do:

Educate Yourself:
Educate yourself on the retirement options available to you. It may be cliche but knowledge really is power. Once you understand what your options are, you’re in a better position to act.

Start with doing research and asking questions.

Call up the HR department at your job and ask about your company retirement plan. Is there a company match? Request the latest quarterly or annual statement to review your current holdings. Get the online login information to you retirement account.

Start with educating yourself.

Increase Your Retirement Contributions:
If you’re behind on retirement, you need to catch up. The way you can catch up is through increasing your current contributions. Every month or every other month, gradually increase how much you contribute to your retirement accounts. For example, if you currently contribute 3% of your gross income, increase your contribution to 4% and then increase it to 5% the following month (and so on).

Learn to live on less and still be happy:
This is a big one. How much you need in retirement is directly correlated to how much you spend now. The higher your current annual expenses, the more money you will need to retire. And if you’re behind on retirement, the longer you’ll have to work in order to catch up.

Therefore, you have two options, work longer and harder to fund your current lifestyle in retirement or cut back on expenses now so that you don’t need as much money in retirement.

You can even take the 25x rule and apply it to individual expenses. This will put in perspective how much you need to have in your retirement accounts in order to cover a current expense.

For example, our cable/internet bill is $175 a month. $175 x 12 = $2,100 in annual cable/internet expenses and $2,100 x 25 = $52,500. That means we’ll need $52,500 saved up by the time we retire to cover the cost of the cable/internet bill in retirement.

Do we value our cable/internet bill enough to have to save up $52,500 in retirement to fund it? I don’t think so. Now, lets say we were able to to cut our cable/internet bill to $80 a month instead.

The annual expense would be $960 ($80*12) which means when applying the 25x rule, we would only need $24,000 in retirement to cover the cable/internet.

You can see how having a monthly bill of $175 vs $80 directly affects not only your current finances but your future retirement finances.

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Based on 25x retirement calculation rule and how much you currently have saved, are you on track to be in the 8% of people who are financially free or 92% of people who are broke when they retire?

Need help figuring the out the 25X rule for your expenses? Sign up below to get the Free 25X Retirement Rule workbook which will calculate what you need for retirement. You’ll also get access to all the other awesome tools and resources in my Free Resource Library.

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5 thoughts on “Are You On Track To Be Broke or Financially Free in Retirement?”

  1. Great info you’ve got here! I definitely feel I’m on the right track but haven’t actually taken the time to calculate how much money I’ll need in order to maintain my current lifestyle by retirement (which isn’t fancy at all). I’ll have to take a look at your resources!

  2. Pingback: 48 Financial Experts Tell You How Much Money You Need To Retire

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Hey! I'm Jamila!

I want to teach you what I’ve learned through a little trial and error and a lot of discipline over the years. My goal is to help you eliminate debt, save more money and increase your net worth.

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