How Much Should I Save If I Want To Spend $100,000 Every Year In Retirement?

The key to achieving a successful retirement is careful, realistic planning. First, you need to decide what the ideal retirement looks like for you and your spouse. Will you travel? Move to an exotic location? Build a mountain cabin? Start a small business? Once you’ve set your goals, you must think carefully about how much income you need to make those dreams come true.

But what if you discover that you need a significant amount of annual income to fund your post-career life? Really significant. Like $100,000 per year? The retirement calculators will say you need to have $2.2 million in your retirement accounts to generate that level income.

Put away that paper bag. Don’t hyperventilate. There are ways to generate that $100,000 of retirement income without eating cat food from now until you turn 65.

Related: 4 Questions To Answer When Planning For A Happy Retirement

Your investments should provide only a portion of your retirement living. Here are some other income streams to consider.

Social Security -- You can start receiving benefits when you are 62, but you’ll get a higher monthly payment for every year you wait up to age 70. But will Social Security be around when you retire? Probably, especially if you are currently in your late 50’s or early 60’s. If you’re just starting your career, it couldn’t hurt to plan for a retirement without Social Security.

Pension – If you are one of the lucky few who still earns a pension – teachers, government workers – remember to factor that income into your monthly income.

Part-time Work – Consider taking on a part-time job to generate some additional income. Your side gig should be on your terms -- work you enjoy with hours that allow you to live out your retirement dreams. The ideal job will connect with one of your passions. If golf is your thing, get a job as a starter or tournament marshal. Love clothes and fashion? Put in a few hours per week at a boutique.

Working part-time offers the secondary benefit of social interaction and the chance to make new friends.

Rental Income – If you are in a position to buy a new home without selling your current house, consider renting the old place. This is a great idea if you plan to downsize in retirement. There are two potential benefits to renting. First, your tenant is paying the freight while you build equity in a home that is hopefully increasing in value. Second, the rent may exceed your monthly obligation on the house – mortgage payment, taxes, upkeep – in which case you are generating extra monthly income.

Related: Have Some Street Sense When Deciding Whether You Should Sell Or Rent Out Your House

Investment Income – This is a central piece of the income puzzle. A generally accepted rule of thumb says every $250,000 you save will throw off $1,000 per month in income. This money comes from dividends on stocks, interest on bonds and distributions from such alternative investments as REIT’s (Real Estate Investment Trusts) or MLPs (Master Limited Partnerships).

Obviously, the sooner you start saving, the faster you’ll reach your goals, thanks to the power of compounding, in which interest thrown off by an asset is reinvested and thus earns more interest. As the great showman P.T. Barnum noted, “A penny here, and a dollar there, placed at interest, goes on accumulating, and in this way the desired result is attained.”

Related: It's Not How Long You Save, It's How Early You Start

So, let’s put all of this together to see exactly what it will take to get you and your spouse to that $100,000 annual income:

Social Security = $3,000 per month ($1,500 each) Part-time Pay = $1,000 per month ($500 from each of your jobs) Pension = $0 Rental Income = $1,000 per month (after all expenses)

TOTAL = $5,000 per month

The above gives you $60,000 in annual income, meaning you need to generate $40,000 additional per year from investments. It takes about $850,000 in retirement savings to throw off that amount of income. That’s doable for most anyone with a bit of discipline and determination – especially if you start early.

As the chart below shows, you can amass $850,000 in 35 years by setting aside just $636 per month. But wait just 10 years to start and you need to save $1,291 per month – more than double.

True, $850,000 is a lot of money, but it’s worth every sacrifice if it funds the retirement that you fantasize about while driving home from work. And, heck – it’s a bargain next to the $2.2 million that damn calculator said you’d need to make your dreams come true.

Years Until Retirement

15

20

25

30

35

Monthly Savings

$3,043

$1,926

$1,291

$896

$636

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