Most Americans haven't even tried to figure out how much money they'll need in retirement, and that could help explain why so many are not prepared for their future.
As noted on the Tony Robbins blog, "you can't reach your financial dreams unless you know precisely how much it will take to get there."
Ultimately, "clarity is power," says the best-selling author of "Unshakeable" and "Money: Master the Game."
The good news is, the number crunching is easy. Follow his simple formula to calculate how much money you'll need to enjoy your golden years without having to work.
- Determine how much money it takes to maintain your lifestyle. "To clarify, this is not how much you earn, but how much you spend," writes Robbins. For example: "If you make $100,000 but live off of $80,000, then this number would be $80,000."
- Multiply that number by 20.
Now that you have your "magic number" in mind, you can start working towards reaching that goal.
The simplest starting point is to invest in your employer's 401(k) plan, a tax-advantaged retirement savings account, or other retirement savings accounts, such as a Roth IRA or traditional IRA.
No matter how you choose to save, the most important step is to open at least one account.
Next, follow these three steps so your money can grow over time:
- Contribute as much of your income as you can. If you're funding a 401(k), the contribution limit for 2018 is $18,500 for workers under age 50. If you're funding a Roth IRA or traditional IRA, the maximum yearly contribution is $5,500 for workers under age 50.
- Automate your contributions. Have your employer do a payroll deduction or have your money taken out of your checking account and sent straight to your retirement account. After all, you can't spend money you never see.
- Get in the habit of upping your savings consistently, either every six months, at the end of each year or whenever you get a raise. Again, if you make this automatic by setting up "auto-increase," you won't forget to up your contributions, or talk yourself out of setting aside a larger chunk.
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