How Much Money Would You Need Invested to Produce a $50,000 Retirement Income?

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Want to live on $50,000 per year in retirement? Keep reading to learn how to calculate your investment target to make it happen. 

Retirement can be an expensive time of life, especially if you want to enjoy traveling around the world or if you have costly healthcare expenses to pay as a senior and don’t want to end up in credit card debt. It’s important to make sure you have enough money to do all the things that you want to do during your later years.

For some people, this means aiming to produce around $50,000 in retirement income from their savings. And if this is your goal, you’ll need to consider exactly how to achieve it. Here’s what you need to know about the amount you’d need invested in a 401(k) or retirement accounts at a brokerage firm to give you your $50,000 in retirement income.

How much savings do you need to produce a $50,000 retirement income?

When you’re deciding how much retirement savings you need to provide a desired income, the most important thing to think about is your withdrawal rate. You don’t want to take too much money out of your retirement account too fast. If you do, you won’t leave enough invested. You need that money sitting there in your accounts, invested and earning returns.

There are a lot of theories on how much, exactly, you can safely take out of your accounts. One of the most common approaches is the 4% rule. If you follow it, you can take out 4% of your account balance in the first year of retirement. Then, each year, you just adjust upward to account for inflation.

There are some problems with this rule, including the fact it doesn’t respond to market performance and may not be perfectly suited to every person’s situation. But it’s still a helpful rule of thumb because it gives you an easy way to estimate how big your nest egg needs to be to produce a desired income — especially since you can’t really predict what the stock market is going to do in the future. You also may not have a clue about your actual retirement spending needs if you’re decades away.

So, if you decide to use the 4% rule, there’s a really easy way to figure out how to determine how much money you need invested to produce $50,000 (or whatever your desired income amount is in retirement). Just multiply the amount you need by 25.

So, in order for your retirement investment account to safely produce $50,000, you would need $1.25 million in investments. If you wanted less — say $20,000 — you would only need $500,000 invested. If you wanted more, like $100,000, you’d require savings of $2.5 million.

How much do you need to save each month to hit your target?

Knowing your big number that you need invested to produce your desired retirement income is an important step in planning for retirement, but it is just the first step. You’ll want to break your big goal down into smaller ones and figure out how much you must invest each month to hit your retirement savings target.

This calculation is going to depend on your timeline until you retire and the returns you earn. If you have more years until retirement or earn a higher return on your investments (ROI), you won’t need to save quite as much money to meet your goal.

You can use the calculator on Investor.gov to determine your personalized number based on how big your nest egg needs to be, the returns you expect, and the number of years until you’ll need your retirement funds. Just input this specific information, as well as your current savings balance and your desired end goal.

Once you have figured out exactly how much to invest each month, try to automate the process. Have the desired amount of money taken out of your paycheck and put into a 401(k) or withdrawn automatically on payday and deposited into your IRA account with your broker. This is what I did, and I haven’t missed a retirement account contribution in the years since. If you can take this step, you will be on track to have your $50,000 in retirement income or whatever amount you desire.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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