Written by Hi, it’s Dre Griggs with Obsidian Wisdom. Today I’m going to answer the question, how much is enough to retire comfortably? For this answer, you already know, it technically depends on a lot of factors, but what we’ll do is we’ll take some averages and we’ll take some medians and what we’ll figure out is how much you need to retire in the United States on average.
Determining Retirement Income:
To answer this question, there are two things that you really need to know. You need to know how much money you have coming in and how much money you have going out. If we can match those numbers, then we know that we’re okay for retirement.
Average Social Security Income:
What we’ll use, and I’ll put a link to these videos throughout, is first we’re going to start with what is the average amount I can expect to receive from Social Security. About 70 percent of Americans expect Social Security to be a major contributing factor in their retirement plan.
So it makes sense for us to start with that. It’s about $1,800 a month is what the average person will receive in Social Security income. And $1,800 a month will generally create for you about $20,000 in retirement income every single year.
Median Retirement Income:
The median income in the U.S. is about $60,000, but the median retirement income is closer to $40,000. So, depending on your overall retirement lifestyle, you could be anywhere from halfway to a third of the way towards the goal that you need.
Calculating Retirement Savings:
Now granted, if your lifestyle is going to be higher than that, then naturally that means you need more money. The next thing we’ll look at is something called the $1,000 per month rule.
And all that rule is, and I’ll put a link to another video where I go into great detail about it, but all the rule is, is it says for every $1,000 a month I want in retirement income, I need to have $240,000 invested. Which means if you take your social security income, which is about $20,000 a year, and depending, it’s probably going to be taxed depending on how much money you have, but it may not be. It is possible, but most people are going to pay taxes on social security income. So we’re going to have about $20,000 a year in social security income.
If we’re on the low end of the average retirement income, which means you would need about $480,000 invested, about $500,000 invested. To be able to follow that $1,000 per month rule, which is about $12,000 a year. So you need $240,000 times two, and then that would get you $2,000 a month to go with your $1,800 a month, which will put you around $44,000 a year.
For the average retirement income based on the average social security and following that rule, which is high level, the general returns that someone can expect, then you would only need about $500,000 to be able to live comfortably in retirement.
Higher Retirement Income and Cost of Living:
If you’re someone who’s thinking you want to be a little bit closer to that median income, which is about $60,000 a year. Well, we have about $20,000 in retirement income. So we need an additional $40,000. Which means we would need twice as much as the previous example. So we will be closer to a million dollars that we would have set aside in an investment account for us to be able to live off of $60,000 per year in retirement income.
The next thing you’ll want to know is what is the average cost of living in the United States, if you plan on retiring in the U.S.? I do have other videos where we talk about the cost of living in different states when we’re trying to figure out the best 10 states to retire, but we can say on average it’s about $2,500 to $3,500 every single month is what someone spends on average.
What’s included in Cost of Living:
When we look at the cost of living, we’re talking about things like your housing, your food, your transportation, health care, taxes, and other expenses. That is what goes into the average cost of living equation for someone in the United States.
If you were to take the higher end of the number, that $3,500, you multiply that by 12, it would get you $42,000, which is about what we said. And when you retire, ideally you’ve paid off your mortgage, you probably paid off a lot of your bills, shouldn’t have a credit card debt, and as a result, you should be in a really good position to be able to live off of that.
Retiring in Lower Cost of Living Areas:
Now granted, you already know the number varies depending on the state that you’re in, but you don’t need me to tell you that because you’re well aware of that. Part of the reason people enjoy retiring down here in Florida with me is because they know a couple of things.
One is they know we don’t have a state income tax. Two is they know our weather is pretty nice year-round, minus the hurricane season, you don’t have to mention it. But three, we also know that we have a very low cost of living in Florida. At least relative to some of the states that people are retiring from.
What is Near-Shoring:
There was a point in time that I worked for Deutsche Bank. I worked in an investment bank and I was a financial analyst who did the reports for the traders. Well, part of the reason that these banks choose to open locations in Florida and North Carolina and different places is because we’re in the same time zone as New York, but we have a significantly lower cost of living.
So what is happening is you could pay someone very well for the state of Florida, but that number is still significantly lower than the amount you’d have to pay someone in New York. And what it is, is it’s called nearshoring.
Most of us are familiar with offshoring where I may send a job from the United States to India because there’s a significantly lower cost of living in India. Where I may send my manufacturing out to China because there’s a significantly lower cost of living in China. And as a result, I’m able to offshore off of the American shore.
Well, nearshoring is, I stay in the United States, but the job is transferred between the states. We live in the same time zone, we generally have the same education, and we also have the same English language. Now I know you may be thinking, well, some dialects, and I agree, there are some differences in dialects, but as far as an American dialect, you have an American voice, where when someone picks up the phone, they’re like, okay, this person’s in America.
And so I’m talking about that when I say the dialect. Nearshoring gives you all of the benefits. You still save a decent amount of money. You’re not saving as much as if you offshored it, but you do have a significant savings. You can operate that same way for your retirement plan.
Moving For Retirement:
For example, there’s a decent number of people from New York who retired to Florida. Well, if you were to take the median income in Florida and compare it to the median income in New York we know that someone moving from New York to Florida, maintaining their overall income is going to feel like they’re making a ton of money. We know that someone moving from Florida up to New York, maintaining what their salary was when they were in Florida, is going to feel like they took a significant pay cut.
And that reality is true for us as well in retirement. It’s part of the reason that many people are deciding to retire in different countries. I know there was a point in time that people were looking at retiring parts of Mexico, but with the drug cartels and kidnapping and ransom and different things, people aren’t as excited as they once were about retiring in Mexico, but it doesn’t mean that it’s not happening. There are people retiring in Mexico, Costa Rica, Italy. People are traveling to the Dominican Republic. People are going to these other countries because their money lasts a lot longer there.
Vacation Expenses in Retirement:
If you’re someone who has a pension in the higher cost of living state and you move to a lower cost of living state, you may be done right there. The numbers may work out perfectly for you.
The last thing we’ll talk about is what is the average expense someone can expect when they take a vacation? So we’ve been using averages to figure out what I would need to retire comfortably. We’ve already got all your bills taken care of. But for many of you comfortable doesn’t stop there. Comfortable is you being able to take trips. Well, in the United States, you need about $2,000 per week of vacation.
If it’s two of you going on vacation, then you need about $4,000, but, you know, a little bit of savings, so it’s more like $38K, $3,900. But if you’re going to take a vacation in the United States, on average, you can expect to spend $2,000 a week. So all you would have to do is decide how many times you want to take a vacation each year. Do I want to take a vacation once a year? Or do I want to take a vacation once a quarter? Or maybe I want to take a vacation once a month? Whatever that number is, just multiply it times $2,000 and you should be able to have a comfortable amount of what you would need to spend for your vacations to have a comfortable retirement.
Final Thoughts:
If you’re someone who said, you know what Dre, I already have my number, I’m at that $40,000, I’m pretty good, I feel very good, let’s add $2,000 for one vacation every single year. Or, you know what Dre, I don’t think I want to take a vacation every year, so let’s do two vacations in one year and then take off the next year.
Well, that still gives you an average of one vacation a year, so we would still keep that same number. If you’re someone who says, Dre, I’m going for gusto. I’m going to travel. I’m going to take all these vacations. I’m going to do amazing things.
So put me down for $2,000 every single month and I’m going to live my best life ever. And we can do that too. The whole point of your retirement is for you to enjoy yourself. You worked hard. You earned this.
But a huge part of you being able to enjoy yourself is having the peace of mind that you’re not going to run out of money. I’m going to do another video where I talk about people just being uncomfortable spending their money. Where they have a whole bunch of money that they can comfortably spend in retirement, but they’re so uncertain about the amount that they can spend that they actually have too much money saved for retirement, at least based on the way that they’re currently spending.
As always, I just want to thank you for your time. I don’t take it for granted. I appreciate you all very much. If you found value in this video, go ahead and like and subscribe so you can continue receiving valuable insights on how to create your own wealthy retirement system so that you can worry less and live more.
Until next time, stay safe and enjoy life.
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