How Much Money Is Really Enough?

Here are some ways to help you figure it out.

How much money is enough varies greatly from person to person. Specifically, how much money is enough depends on your lifestyle and what your expectations are. What’s more than enough for one person may leave another feeling impoverished. 

This is true both in terms of day-to-day living and in terms of retirement savings. To get a handle on what might be enough for you, you’ll need to consider a number of variables — from your current and projected expenses to your anticipated life span. 

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See: How Much Money You Need To Live Comfortably in 50 Major US Cities

How Much Money Do You Need To Be Comfortable?

How much money you need to be comfortable is a very personal decision. Where you live also plays an important role in how much money you need. For example, according to statistics from MIT, a living wage in Los Angeles County for a couple with no children is $48,383, whereas in Holmes County, Mississippi, the required wage drops by over $13,000 — to $35,217. 

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Using these figures as a guideline, a 30-year retirement in Los Angeles County would require close to $1.5 million just to get by, assuming those funds aren’t invested. This minimum amount would drop to just over $1 million in a more affordable area like Holmes County, however. 

Of course, these are broad guidelines. Your expenses might be more or less in retirement, and if you want to be comfortable, you’d want more money than just the living wage amounts. You should also factor in that you’ll have at least a portion of those funds invested during your retirement years, however.

Find Out: How Long Will Your Retirement Savings Last?

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How To Calculate How Much Money You Really Need

The exact amount of money you really need can be a moving target. Even so, there are some calculations you can make, based on certain assumptions, that can help you arrive at a good approximation. Here’s what you need to know.

Calculating Current Needs

In terms of your current needs, the best way to start is to calculate all of your monthly expenses. Be sure to add in all of your annual expenses and average them on a monthly basis. This should give you enough to determine how much money you really need every month. If you want to live more comfortably, add another 10% or 20% to the calculation.

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See: Cities Where the Average Salary Isn’t Enough To Get By

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Calculating Lifetime Retirement Needs

In terms of your lifetime retirement needs, the simplest calculation is to take your average annual expenses and multiply them by your life expectancy. For example, if you spend $50,000 per year and your life expectancy is 25 years, you might estimate a lifetime financial need of $1.25 million.

While no one can predict their life expectancy with certainty, you can use online calculators to make an estimate, sometimes factoring in variables such as your lifestyle and health situation. Once you reach age 70, the IRS provides a helpful life expectancy table that’s used for minimum individual retirement account withdrawals. 

More advanced calculators can factor in other variables, such as your estimated Social Security income and your investment income. Under these scenarios, you won’t need as much money over your lifetime because you’ll have supplemental income. 

How Do You Compare? 64% of Americans Aren’t Prepared For Retirement

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The Power of Investing

Under the above scenario, you’ve estimated you’ll need $50,000 per year to enjoy your 25-year retirement, totaling $1.25 million. If instead, you’re able to invest that money at 5%, however, your $1.25 million will theoretically last forever.

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For example, 25 years into your retirement, all other things being equal, that $1.25 million will have grown to over $1.8 million — even after annual withdrawals of $50,000. So, to have enough money to cover a 25-year retirement using $50,000 per year, you’ll only need a bit over $700,000, if you can invest it at a 5% return annually. 

The important thing to understand is that if you’re able to successfully invest your money in retirement, it can last many years beyond a simple straight withdrawal strategy.

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What Is Financial Independence?

Financial independence is the ability to afford your lifestyle without the need for supplemental income. Financial independence is not a magical signpost or number, however. Rather, it runs along a continuum. 

For most people, there are various stages of financial independence. For example, the first stage might be when you get your first job and no longer need to rely on your parents, friends or relatives to support you financially. The next level of financial independence might be when you own your first home and no longer need to pay rent, although you’ll have mortgage payments. Eventually, you might get to the point where you pay off your home, which marks another level of financial independence. The ultimate level of financial independence is if you can comfortably retire without the need for a job to support your lifestyle. 

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The FIRE (Financial Independence, Retire Early) movement, which is currently a booming trend, suggests that with an extreme level of savings — think 50% of your income or more — you can retire early and be financially independent. While this is certainly possible, it requires a lot of dedication and sacrifice when you are young. The other major caveat of the FIRE strategy is that it dramatically lengthens your time in retirement as well, meaning you’ll need to save significantly more than if you retired at 65. 

See: Here’s How To Retire Early and Quit the Daily Grind

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How Much Money Is Enough for a Lifetime?

You can’t know with certainty how much money would be enough to last a lifetime, as you can never be sure how long you will live and how much you will spend. Any estimate of how much money you really need is a projection. The more accurate you can input your financial needs, however, the better an estimate you can create.

Whether you’re trying to create a current budget or you are projecting out your needed retirement savings, “enough” money is the amount you need to cover all of your expenses.

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For retirement, the amount you’ll need is what will cover your projected expenses, times your expected life span. For some, this figure will be $1 million or more. For others, it can be much less. Tailor your projections to your actual and projected needs to find your specific number.

Click through to learn how to turn your $50,000 salary into a $1 million retirement fund.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.