Could you live comfortably on $100,000 a year in retirement? If so, I have some pretty good news; it’s not that difficult to achieve. Let’s go through this together. I’m pretty sure you’ll agree that $100k in retirement income is probably within your reach.
1. Social Security and Pensions
Let’s start out with the easy pickings. If you are a married couple and qualify for the average monthly Social Security Retirement benefit, that comes to a tidy $1294 per individual according to the Social Security website.
That works out to a little more than $2500 a month or $30,000 a year. We’re a third of the way home and we haven’t even gotten out of the parking lot. Sweet.
2. Investment Income
You are short $70,000 a year. Let’s assume you have no other pension income so you need to create as much as possible from investment income. This may seem like an arduous task. But let’s break it down.
Generally speaking it’s reasonable to withdraw 4% on your investments. I know that may seem like a high hurdle to breach right now but it’s very reasonable for a couple reasons. First, we aren’t talking about earning 4%. We are talking about withdrawing 4%. Second, please understand that when talk about earnings it’s not just interest but growth as well. Third, we aren’t talking about earning 4% on bank CDs. And fifth, we’re talking about withdrawing 4% on your money over a very long time period. (Here’s a full discussion on withdrawal rates and investing.)
With a 4% withdrawal rate, you’d need $1.75 million dollars invested in order to receive $70,000 per year. Now, before you fall off your chair, $1.75 million might seem like an impossible goal but remain calm.
Depending on your age and ability to save, it may not be that difficult to accumulate this sum. At 7%, if you save $1500 a month for 30 years, you’ll get there. That might be a stretch for a lot of people but that’s not the end of the story.
Let’s say you start off with $100,000 saved, are able to save $500 a month and you want to retire in 20 years. If that’s the case you’ll end up with about $635,000 if you can grow your money at 7% on average. That neat little pile of cash will generate $25,000 a year in taxable income.
We wanted $70,000 and we came up with $25k. We’re still $45,000 short of our income goals. That’s OK. We’ve still got a few tricks up our sleeves.
3. Become Renters
This may seem counter-intuitive but it may be smart to sell your home and become renters when you retire. Sure you’ll have to pay rent but that might be a very good thing. There are several reasons why I suggest this:
- When you rent you say goodbye to maintenance problems. Even if your home is paid off now, your maintenance costs could easily exceed the rent you might pay elsewhere.
- You might not need a big house to live in once you retire.
- You free up capital which can be used to supplement your retirement when you sell.
Let’s assume that you retire at 65 and sell your house for a cool $500,000 profit. If you invest that money and annuitize it, it will create almost $32,000 a year for 30 years if you earn 5% on average.
Now you’re only $13,000 a year away from that 100 grand you’ve been dreaming of. Luckily there are still a couple more tactics to help you clear that hurdle.
4. Side Gig
We’re at the home stretch now and very close to achieving your goal. If you and your spouse take on a side job you can have a little fun, maybe get some cool discounts and other perks and hit your mark. If each of you earn $550 a month, you’ll make it and how hard will it be to find a little part time work that will do that? It shouldn’t be hard at all.
Retiring with an income of $100,000 a year is not beyond your reach. Depending on your age, spending habits and commitment, you can achieve this goal. Even if you are a little bit short of the goal, if you take advantage of the ideas presented here you’ll be much further ahead than if you do nothing.
How much do you want to retire on? What is your plan to get there?