Saving for Retirement

So ever since I started working, my beloved grandfather tried to instill in me the importance of putting part of my paycheck in my savings account. With all the scary talk that has been going on for the past couple of years (seems longer) on whether or not Social Security with be there for my generation, I figured it wouldn’t hurt to take matters into my own hands.

I’m not trying to be political in anyway. This is just my opinion.

I was recently given Dave Ramsey’s The Total Money Makeover on audio book. A few things he had to say resonated with me, especially his formula for calculating how much you need to retire.

His advice was to multiply your nest egg by 8%, and the resulting number would be your annual cost of living allowance while retired. This is the most concrete ANYTHING anyone’s ever put out.

Here’s the formula written out:

Nest Egg x 8% = Cost of Living Allowance

So I had some fun doing the reverse math:

I guesstimated $40,000 a year for cost of living allowance. And plugged this into the formula:

Nest Egg x .08 = $40,000

Divide both sides by .08.

Nest Egg = $500,000.

So in conclusion, I’d have to put away $500,000 by the time I retire to retire comfortably. Maybe. This is a guesstimation. I have no doubt this number may change at some point and I’ll have to recalculate.

I do like this formula because anyone can use it and it’s simple math.

If some else finds this formula useful, thank Dave Ramsey.