The quest for financial freedom is like chasing a horizon that keeps moving as you run toward it.
My world was entirely different a decade ago, and I knew this would change in the future.
I had no kids, but I was living in the fast lane in Puerto Rico and planning (and dreaming) of having a family.
Back then, my financial plans were just about me.
Now, with a family, the financial picture is entirely different. Kids mean planning not just for themselves but also for their future.
It's important to consider where you are now and where you want to be.
A CNBC report highlighted how much retirement costs vary across the U.S. due to differences in living expenses.
If you were single in Puerto Rico, your retirement savings might stretch further due to lower living costs.
But if you move to Raleigh and have a family, your expenses increase, meaning you'll need more in your retirement fund.
I'll cover a "magic number" for your retirement in this article. It's a starting point, but remember, it's not one-size-fits-all.
Your lifestyle, where you live, and your personal goals will influence this number. Tailoring this baseline to your unique situation is critical to achieving financial freedom.
The "Magic Number" for Retirement
You've probably stumbled upon articles or financial gurus discussing the "magic number" for retirement.
That amount of savings is supposed to unlock the door to a carefree retirement.
Some research indicates it is around the $1.8 million mark.
It considers factors like life expectancy, living expenses, and the lifestyle you want to lead when you're no longer punching the clock.
How can you calculate yours?
Starting with straightforward math, you can set yourself on the right path.
Imagine you decide to retire at 65 and, based on current life expectancy trends, you might live until around 83.
This means you could be looking at approximately 18 years of retirement.
To figure out how much money you'll need, consider your current annual expenses and whether they'll stay the same or change.
If you live on $100,000 a year, you need to save around $1.83 million for those 18 years.
You can also take a few steps to reach your magic number:
1) Make sure you're taking full advantage of any 401(k) matching programs your employer offers ("free money" for your retirement fund)
2) Establish an emergency fund covering 3 to 6 months of expenses and pay off high-interest debt, creating a stable financial foundation.
3) Contribute to an Individual Retirement Account (IRA), even with as little as $100 a month.
4) Ideally, aim to invest at least 10% of your net income into a diversified portfolio to grow your retirement savings steadily. (Make sure to join the waitlist for the fixed-rate bonds of our company)
Remember that this $1.8M number is unique.
The cost of your morning coffee varies significantly depending on whether you're in the heart of New York City or a small town in the Midwest.
Some may think that retiring with $10 million in the bank overkills, but for others, it is the ticket to their dream retirement plan.
Your lifestyle choices will shape your financial goals.
Just do a self-assessment, and you'll know better than anyone what to do next.
How to Calculate Your Magic Number
After you finish reading, take 10 minutes out of your routine to do this: go to NerdWallet's Retirement Calculator, input your current age, desired retirement age, current savings, and a few other personal details.
With that, the calculator will estimate what you need to do today in the future that you want.
This will help you align your retirement savings with your goals, providing a clearer picture of the path ahead.
Conclusion
It is essential to occasionally use the calculator to ensure your goals are being hit.
Everyone’s number may differ, but we all agree with inflation, it will be at least a couple of million.
Retirement age will show up fast, and you will want to be prepared.
