How Much Savings Do You Need to Retire 2022 Guide?


Who can think about saving for retirement when our daily needs, from food to housing, seem so expensive these days? Plus, you work hard for your money, right? You want to enjoy your money and live for today, right? But you may be concerned that you aren’t saving enough for retirement.

Well, guess what? It is possible to save for (early) retirement and enjoy life at the same time! You just need a comprehensive financial plan. Let me explain the three strategy steps I took to early retirement from a full-time job:

Step 1: Document and assess your starting point

Assess your overall budget (get the one I use that calculates your budget for you). Then, print out your last three months of bank account, credit card, and debt statements. Review them in detail and summarize your financial situation. Sum up the totals and document your net worth. Alternatively, you can download Personal Capital’s free app and plug in your account information, and let the app do it for you.

Here are a few questions to ask yourself. How do I feel about my current financial situation based on this assessment? Have I been making progress toward my goals or away from my financial goals?

Dr. Kisha’s personal finance tip: Write out your long-term and short-term goals. Then, get an easy-to-use budget that automatically calculates your monthly balance after paying for each expense. You want to be able to easily change the category amounts to fit your goals. If your goal is to create a $5,000 emergency fund, you’ll want to save about $420 a month. So, you’ll put that into your budget, knowing that you’ll likely have to cut other areas. (Need help figuring out where to cut? See this blog post)

Step 2: Time to marry your 401k

If you are working, contact your human resources department and request information on your retirement savings options. There are many options to consider, such as a 401k (or 403b), Roth 401k, and 457b among others.

Here are a few questions to ask yourself: Am I contributing at least to any company match (keep in mind the match is not the max you can contribute)? Am I contributing to all available retirement accounts? Have I maxed out any or all accounts? Have I opened an investment account outside my workplace to invest in my future?

Dr. Kisha’s personal finance tip: Calculate how many more years you’ll work, based on the amount you are contributing today. When can you expect to retire? Am I happy with this?

If not,

  1. determine how you can reduce expenses
  2. contribute more to retirement and investment accounts

Step 3: Calculate your FIRE number / (How Much Money Do I Need to Retire?)

Saving and investing are great but if you don’t know how much you need to become financially independent, you may work longer than you have to.

Here is the most important question to ask yourself: How much money do I need to live each year? Considering all necessities including vacations, how much do you need? Don’t count taxes yet and use your annual salary. Go back to step 1 and use your exact number. I need less than $40,000 a year to live because I’ve been able to reduce my expenses so much. If I want to live on more I can, but if I have $40,000 to cover my expenses, I don’t have to work.

Dr. Kisha’s personal finance tip: Now that you know your number, you can calculate your FIRE number. Financial independence retire early (FIRE) is changing your spending habits to focus on investing to become financially free. When you can pay your living expenses from gains and passive income, you are financially free. I saved and invested in the stock market until my nest egg reached 25 times my necessary annual expenses. I can withdraw 4% annually to live off and spend my days as I wish. Even on a tight budget, a little reprioritization can go a long way to start saving for retirement!

If you have questions that need answers, write to me and I’ll address them in an upcoming blog!

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I am thankful you are here to learn and hope you find value here. I am not a financial advisor and this is not advice. I am sharing how I became financially independent in hopes that the information is useful to you in your research journey. Also consult your tax accountant and do your own follow up research :) If you purchase on my Amazon Store links or other affiliate links, you are supporting me and this free information with no additional cost to you. Thank you!

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