Personal FinanceCanva: cyano66 from Getty Images and littleny from Getty ImagesDavid BerenOne of the biggest financial decisions anyone has to make is determining an approximate net worth number they want to be at before deciding to retire. This number will vary significantly based on different individuals’ needs and wants, which is completely okay. If you’re unsure what your number should or needs to be, there is no shortage of formulas to help you make the right determination, including for those who make around $400,000 annually.
If you make $400,000 per year, there is a an approximate retirement number.
If you’re behind on this number, there are ways to attempt to catch up.
If you’re ahead of this number, there are ways to diversify your money to earn more.
Smart Social Security planning can help you retire early. Talk to a professional today and learn more (sponsor)
Where You Want to BeIf you are making $400,000 and want to retire by 65, the calculation isn’t all that difficult, especially regarding where your general financial advisor says you should be. At the minimum, you should have at least $2.98 million saved by age 65, around a 7.5 multiplier of the existing salary. Of course, it’s important to remember that this is much more than just traditional savings. You must assume a few things to achieve this calculation and stay sufficiently ahead while retired. First and foremost, assume you are making a 15% pre-tax retirement contribution while working. There is also the consideration that you are in the 28th percentile for income tax, which means a 28% effective tax bracket on the $400,000 annually. Beyond taxes, you’re also considering that you are making an average 6% annual portfolio return before you turn 65 and retire. Once retired, you’ll likely want to reduce your risk, so your return becomes 5% post-retirement. Last but not least, this $2.98 million calculation also includes the start of Social Security at 65. At 65, you’re two years shy of Full Retirement Age, so you’re likely just under the $3,822 maximum payment you would hit at 67. All of these numbers account for inflation and will aim to keep you financially secure while you are retired. Yes, there will be market volatility. Every good financial advisor should prepare you for the market to move up and down, market corrections, Bear and Bull markets, etc. However, the 6% pre- and 5% post-retirement return rates are standard numbers. What To Do If You Are BehindThe good news is that if you are behind on the $2.98 million figure and want to catch up, there are multiple methods to do so. Increase 401(k) ContributionsOne of the most immedia