How Much Money Do You Need To Retire At 55?
As a young person, it’s important to start saving and investing. Especially with retirement in mind where you do not want to belong to the 20% living in poverty.
Maybe you want to go beyond that and from 55 you retire. One of the most frequently asked questions is: “How much do I need for my retirement (or retire)?” Or ask more practical minds than “how much should I save up together for raining days?”
To frame the question better, “how much money do you need to stop working,” it’s often estimated between € 1 million and € 10 million, but almost no one has really calculated the exact amount.
The truth is, taking retirement at the age of 55 is considered an early retirement. You’re still about seven years before you will even be able to collect partial retirement benefits.
Retiring while you’re young- and still having the money to be comfortable – requires some very careful planning and lots of saving.
Apparently, this is hugely dependent on many factors, but the two most important are your return on your investment and lifestyle. I will strongly advise anyone to look into these two to avoid surprises at the end of the day.
Retirement Funds
For now, we are going to just assume that you want to know how much you need for retirement.
Most financial planners reckon that you should have 65% to 70% of your income when you were around your 50s. It only applies if your children are financially independent, no rents or mortgage to pay, you also have zero debts.
Other Sources Of Income?
Some other things that you have in your calculation should take into consideration is whether you still get extra incomes.
How much your pension will be, presently? How do you relate with your employer as a pensioner? For the self-employed, how much will your business worth if you sell it?
One factor that is overestimated rudely by many is that of pension savings.
If you save up to 20 years in Belgium, with a yield of 7%, you likely get € 75 extra each month.
It indicates the fund of 20 years has about 7% on average. That’s why retirement savings should be stopped; with your higher return, you only get a candy.
How Much You Earned Each Month?
The average statutory pension from 2015 for a worker is around € 1,100, and you are out of your retirement savings, if you start early enough, a small € 200 may add here.
Now you know what you need extra income, next thing you should keep in mind is how long you will need an extra income. The average life expectancy is 81 years. In other words, as you retire at 55 you will need an additional income of about 20 years or more.
Want to retire early? The calculation then begins after extra income. According to financial planners, it is safe to charge with 4% per annum, if you will not want to sit on your capital. This is based on the return of 7% about 3% inflation deducted.
But is 7% realistic? 7% is perfectly good in the long-term market; this can reach you by simply track the index. More is also perfectly possible, but that takes knowledge and time.
Finally, if you will love to take the risk and invest a fortune on the stock market. You will also have to work with fixed income documents, and this gives you less than 7% on average per year.
I will always reiterate to make the calculation again.
Apparently, many studies have been conducted and published in magazines of how much you need to retire at 55.
The conclusion is always more or less in line. Someone from his fiftieth birthday of € 1,000 extra income, to enjoy his 85 requires about € 300,000.
These figures take into consideration inflation rate of 2% and a net yield of about 3.5%. In other words, about 6.5% gross return on your capital.
There is no more to say, if you want to retire at 55 or enjoy your retirement, you will have to consider the stock market. The sooner you invest the easier it will be to get an extra monthly income of € 1,000 or more, together.
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In fact, you don’t need Google-level money to retire by 55, but you do need a plan.
If you have any questions, concerns or want to offer insight about retirement planning, leave a message below and I love to hear about it.
Cheers,
-Maun
