The first step is to determine how much money you will actually need for retirement. This involves calculating your anticipated annual expenses and multiplying them by the number of years you expect to be retired.
The three levels are: 1) Rich Enough, where basic expenses are covered without frills; 2) Pretty Rich, which allows for maintaining your current lifestyle with occasional splurges; and 3) Super Rich, where you have more money than you can reasonably spend, enabling a luxurious lifestyle.
To calculate your annual 'Rich Enough' budget, list all your essential monthly expenses (e.g., housing, utilities, basic food), add them up, and then multiply the total by 12 to get your annual budget.
Nicole recommends budgeting for 20 non-working years in retirement, though some financial experts suggest planning for 30 years. The exact number depends on personal circumstances and preferences.
Using the average U.S. household income of $63,000 before taxes and an annual burn rate of $30,000, you would need $600,000 saved to support a 'Rich Enough' lifestyle for 20 years of retirement.
For a 'Pretty Rich' lifestyle, with an annual spending target of $67,000, you would need approximately $1.2 million saved to cover 20 years of retirement.
For a 'Super Rich' lifestyle, with annual spending of around $100,000, you would need approximately $2 million saved to support 20 years of retirement.
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The** **very first step in making a successful retirement plan (yes, even before starting that IRA) is to know how much you’ll actually need for retirement. Today, Nicole answers a question from a listener about how the heck to make that prediction. Tune in to find out!