If you want the best, most financially secure retirement, you’d do well to read a lot about retirement and investing — and then take action. If you don’t think you’re going to do that, consider at least reading a few shorter pieces full of critical information.

Perhaps start here, with a look at the most important retirement chart you’re likely to see. It assumes that you’d ideally like to retire with a million dollars, and then shows you how much you’d need to invest each year to get there.

Do you need a million dollars?

Of course, not everyone needs to retire with a million dollars. For some, it will be too little and for others, too much.

As you come up with your own estimate, be sure to factor in all your expected expenses, such as food, transportation, utilities, taxes, insurance, entertainment, travel, gifts, and so on.

And remember one of the biggest expenses for many — healthcare.

One way to think about how much money you’ll need to amass is to employ the flawed-but-still-helpful 4% rule. It suggests that in order to make your portfolio (of 60% stocks and 40% bonds) last for about 30 years, you should withdraw 4% of it in year one of your retirement and then adjust subsequent years’ withdrawals for inflation.

To determine how much money you need for retirement, think about how much you want that initial 4% withdrawal to be — and multiply it by 25. (Dividing 100% by 4% gives you 25.) If you think you’ll need, say, $50,000, then multiply that by 25 and you’ll get $1.25 million. Yikes, right?

Remember, though, that you’ll likely be receiving Social Security, and Social Security retirement benefits recently averaged $1,478 (about $17,700 annually), while the maximum monthly benefit for someone retiring at their full retirement age this year is $2,788 (about $33,500 annually). So if you’re expecting, say, $25,000 in Social Security income, you might only need to generate another $25,000 on your own. So multiply that by 25, and you’ll arrive at a needed nest egg of $625,000.

The most important retirement chart

Now that you have a savings goal in mind, how will you get there? The following chart can help. It shows how much you should be investing each month or year in order to amass a million dollars by retirement.

The chart assumes an average annual growth rate of 8%, which is a bit more conservative than the stock market’s long-term average of close to 10% — but understand that over your investing period, the stock market could average more or less than 8%.

If you need to save $625,000, that’s 62.5% of a million dollars, so you can multiply any of the numbers above by 0.625 to get the right number for you. If you need $1.5 million, multiply the numbers above by 1.5. Got it?

A key lesson in the chart is the power of time. If you’re still 30 years from retirement, don’t think you can just put off saving for your senior years for another five years because that will make a big difference in how much you’ll need to save each month or year. Meanwhile, if you were hoping to retire in 15 years, you might see that you’d be better off aiming to retire in 20 years.

Don’t leave much of your retirement finances to chance or you may deeply regret that one day. Take some time to learn, think, and act.

— Selena Maranjian

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Source: The Motley Fool