they talking about you need $5 million to retire $5 million I mean that is Out Of Reach for so many people when I was coming up $1 million that was the number if you had a million dollar you were Rich forever but now at a minimum they talking about you need $5 million well we are here to tell you you do not need $5 million in fact that million do might still be the magic number but we're going to talk about that hey guys it's Aman and Christina from JY today we are talking about how
much money you really need to retire and in the news lately this number $5 million has been floating around a lot they are saying that the average American needs about $5 million to retire comfortably well let's have that conversation so in this video we're going to talk about where that $5 million number came from why it may not apply to you and how you can actually retire with a lot less without sacrificing the life that you want to have in retirement So lately $5 million has been popping up in the news as the new retirement
number and the reason for this is rising costs inflation has driven up expenses like housing health care and daily living levels that make the traditional Benchmark of $1 million seem like not enough so for example recent data has shown that healthcare costs can total over hundreds of thousands of dollars in retirement so when you combine that with longer lifespans and higher living standards that $5 million might not sound so crazy so here's the thing this is the reason why we really don't like that new $5 million number because it's really unrealistic for a lot of
people to amass $5 million even after working so hard and so so long but the thing is your number does not have to be $5 million so let's talk about why so first of all retirement isn't just about hitting some arbitrary number that someone tells you that you need to hit instead it's about finding ways to cover your expenses that you have in retirement this number this amount of expense your budget that is unique to you so let's talk about how you figure out what you actually do need let's say that you anticipate your annual
expenses in retirement to be $60,000 a year and let's say that you plan to have other forms of passive income coming in when you retire so maybe like Social Security or you get rental income from a real estate property let's say that's $20,000 so what you do in this scenario is you would subtract your other income from your expenses in this case you need 40,000 a year from your Investments so using the 4% rule which says you can safely withdraw 4% of your Investments annually you'd need $1 million not $5 million to generate $40,000 a
year now Christina mentions the 4% rule which we've talked a lot about on this channel when it comes to living off of your Investment Portfolio in order to retire early if you want to watch more videos about the 4% rule in how to live off of your portfolio check out the other videos in our playlist now showing you the this calculation is so important because so many people are going into retirement with an arbitrary number they haven't done the calculation and let's say you were listening to what these experts were saying and you use $5
million as your number with a $5 million portfolio if you took 4% from that that means you would be living off of $200,000 a year something that you don't necessarily need when your number is only $660,000 a year to live off of it's important because it means that maybe you work for too long maybe you sacrifice for too much to get to that 5 million when in reality you only needed a million to live comfortably in retirement so here is why $5 million typically tends to be overkill for a lot of people it just assumes
a really high cost of living lifestyle and that is usually not applicable to a lot of people you can live so many places across the world and live a really luxurious life without spending $200,000 a year that's even different places in the states don't even require that in retirement I mean for example if you're living here in Portugal or maybe you're living somewhere in South America or other parts of Asia you could easily live off of $40,000 a year live a comfortable life so here's the reality for most retirees in the US the average retirement
savings for Americans age 55 to 64 is around $200,000 so the idea of needing 5 million feels impossible for most people but that does not mean that retirement is Out Of Reach again it means you need to focus on your own unique circumstances and really focus on things that you can control like your expenses your savings your investment strategy so for those of you that really want to focus on your investment strategy and your financial Independence plan you have to check out our 365 days to fire program it's a year-long program that will be beginning
on January 1st of 20125 we hope you can join us because it allows you to really build a plan that you need for success in fire if you're interested in learning more we'll leave a link in the description below or you can also go to 365 days Toof fire.com so to drive this point home let's give two examples of two retirees the first example is retiree number one this person lives in a High Cost of Living City and spends $100,000 a year using the 4% rule they would need $2.5 million in an investment account to
retire now let's look at retiree number two someone that wants to retire even sooner by moving to a low cost of living area this retiree moves to a place where it only costs them $40,000 a year to live so they would only need $1 million in an investment account so hopefully we've dispelled this rumor that you need $5 million maybe you need two and a half maybe you need one it's all about doing the math and figuring out what works for you now let's say you do the math and you come up with a number
but you want to lower that number even more we have three things that you can do to retire for Less the first thing is to lower your expenses so if you're already living in a High Cost of Living area you can consider moving to a lower cost of living area or maybe you can even stay in the same place that you're at but downsize into a smaller place with a lower mortgage or a lower rent the next thing you can do is maximize your current income you can look for more opportunities to make more money
at work find a new job or maybe start a new side hustle and the last thing you can do is you can take the money that you're saving and the money that you're making more of and invest that money you see investing is so important when it comes to Growing your wealth to help you retire if there's anyone out there that is trying to save their way to retirement you will be saving for a very long time you must invest because investing allows your money to compound to grow through dividends interest and capital gains and
that is what is going to get you to retirement sooner rather than later so we encourage you to take some time out to think about what your ideal retirement looks like where do you want to live what type of Life do you want to live what will your expenses be once you start thinking about that then you can really figure out the amount of money that you need to retire so hopefully this video gave you some food for thought and of course if you like this video make sure you give us a thumbs up subscribe
to our Channel and join the journey
