If you have two hundred thousand, it’s not a very big number. You can retire on one million.
You can’t retire on 500,001.
There are two things going on to make this number seem larger. The first and most obvious problem is that our question is asking the value of the “1 million dollar house” that you and Bill can afford to buy. A lot of people who are planning to retire at this point are asking for just over a million to retire. There are actually a couple steps to calculating 1 million. First, you need to divide this $1,000,000 by 100,000. Then divide this by 2,000. Your answer should be in the middle, right around 900,000. Then divide this by 10,000 and you have your million dollar retirement.
We should also mention that we never mentioned the $500,000 you can save with your 401k, just because some people think $500,000 will be enough to retire on. If you are in the same situation as me, then you probably make a better deal.
The 2nd factor is to think in terms of what will happen when you stop doing those things, and when you get into the $1 million, or whatever number you’ve chosen for retirement! This is the question we’ll look at again.
How much does your retirement amount change when you stop doing X?
If you work 40 hours a week for X hours and save $50,000 a year, that $50,000 will buy you enough to live on. You then have to calculate the difference between $50,000 and $500,000. The first part of the answer to this question is to divide that $50,000 by X. This will give you the percentage change you’ll have over time. This is a really good question, so the answers will vary between people. The median number is about 5%. In fact, this question is so good because it’s the simplest.
The difference between $50,000 and $500,000
Here’s the answer you should end up with.
5% $500,000 – $50,000 = 0% $500,000 – 5% = -5% $500,000 – 10% = 5% $500,000 – 15% = 5% $