What are the two words that people love most?  Oftentimes it’s  free and money!

Who doesn’t want to get free money? 

What’s amazing is the number of people who I run into on a regular basis who continue to leave money  on the table!

If you woke up this morning, got your cup of coffee and went to the front porch to get your paper and instead found a nice, crisp $100 bill – would you pick it up?

Of course you would!  You wouldn’t pick up your paper and say, “Oh a $100 bill” and turn and walk into your house, and yet thousands of people are doing just that.

One of the best feelings in the world is putting on a pair of pants or a jacket and reaching in the pocket only to pull out a crumpled $10 bill that you forgot about!  I love that! 

So, let’s find some free money: 

Company Match

The number of companies that are matching employees 401k contributions has gone down since the start of the Great Recession, but there are still plenty of employers that are matching.

It amazes me the sheer number of people I run into who are unsure of what their company matches or even if they are contributing enough to maximize the full matching potential of the employer.

If the company says, “we’ll match dollar for dollar up to five percent” and you’re only putting in three percent, that is just plain silly!

Review your company’s plan to determine if there are some matching opportunities that you’ve left on the table.

Rebates

How many of you bought a product with a nice little rebate only to forget to send in the form along with proof of purchase and receipt!? 

According to the National Consumers League, “only 2-3% of all those who buy a product with a rebate ever end up receiving the funds.”

Rebates are easy to forget, but worth remembering.  Every little bit counts towards getting free money!

Missing Money

So technically this doesn’t have to do with finding free money, but it does have to do with finding your own missing goods.

MissingMoney.com is a national database established by the National Association of Unclaimed Property Administrators (NAUPA).

MissingMoney.com enables owners to perform comprehensive searches for lost assets required by law to be turned over to the states. 

Just go to the site, type in your name and state and see if there is any unclaimed property waiting to be returned to its rightful owner. 

My coworker actually told me about this site after he found some goods on here that he was missing.

Not Joing a Rewards Program

I know there is hot debate over credit cards rewards programs.  I won’t get into that here. 

But, what I do know is that there are plenty of grocery stores, gas stations and the like that offer free ”rewards programs” or loyalty discounts if you sign up.

One example is the Speedy Rewards from Speedway Gas Stations.  This is not a credit card.  It is simply a loyalty rewards program where you can accrue points to spend on free items.

We have a lot of Speedway’s near us and yet my wife and I still haven’t signed up for their rewards program!  We have friends who tell us how great this program is, so we need to get signed up and start swiping at the pump!

Leaving Money in a Checking Account

This is basic, yet it’s amazing to me how many people leave large chunks of money in their checking accounts earning ZERO!

Even if you moved some of the money to a savings account that only earned 1/2% you’d be better off!  Every thousand dollars earning a half percent gets you $5!  No, it’s not great, but who wouldn’t take $5?

There are plenty of High Yield Savings accounts out there that can help earn an extra 1 or 2% as well.  You’re leaving free money on the table

Not Deducting Charitable Contributions

Maybe this is more common for Christians who think they shouldn’t deduct their charitable contributions because they are seeking a “heavenly reward” rather than an “earthly one”.

I think this is a silly argument.  Remember the parable of the talents?  The master was not pleased with the servant who just buried his talent and earned nothing.  He said, “you should’ve at least put it in the bank and earned some interest”.

Now, I’m not saying the context applies here, but the principle does.  Take advantage of opportunities to grow the money or receive free money that the IRS allows!

Why not get that money back on your taxes and give THAT away too!?

Other Ways to Find Free Money

What are some of the ways you’ve found free money?

Don’t miss out on future posts!  Sign up for Redeeming Riches to be delivered straight to your inbox via email!

 401ks have been around for years and have been an ever increasingly popular way to save money for retirement. 

More and more businesses run some type of deferred contribution plan and they are a great way to attract and retain key employees.

401ks are great from an employee standpoint because they are relatively quick to sign up for, fairly easy to pick funds in and once the initial set up has been done, your contributions are taken out of your paycheck automatically. 

It’s an easy way to save.

But, did you know that by contributing to your 401k you could be creating a giant time bomb?  Here’s a look at why:

What is a tax deferred account?

 A tax deferred account is simply an account that allows you to put in pre-tax contributions for retirement.  The money inside grows without having to pay taxes every single year – they are deferred until some time down the road.

Things like 401ks and IRAs and for small business owners – Simple IRAs and SEP IRAs are examples of tax-deferred accounts.

What is a retirement time bomb?

A retirement time bomb is when you put all or most of your retirement savings into these tax-defferred accounts like 401ks and Traditional IRAs.

When you get into retirement and start withdrawing your money, you have to pay taxes on every single dollar you pull out!

At what rate?

It depends, but the money you pull out is taxed as ordinary income, which means for those of you who think your taxes will go down in retirement – you might be in for a big surprise when all of that money is taxed as though you earned it!

For those of you who have socked away a lot of money into tax-deferred accounts for retirement – these have become a ticking time bomb waiting to explode! 

And Uncle Sam is licking his chops!

What should you do about it?

1. Figure out how much you need for retirement
2. Re-evaluate your accounts – determine if you are properly balanced from a tax perspective
3. Consider other options – look at accounts like Roth IRAs to detemine if it’s right for you.
4. Make a plan to diversify from a tax perspective – figure out how muchyou can get into a tax-free bucket and start shifting money either through contributions or Roth Conversions.

What about you?

Are you holding a retirement time bomb?  What have you done to diversify yourself from a tax standpoint?

Oh great – a post about life insurance – doesn’t he know I’m not interested in reading about life insurance?

Is there anything people hate thinking about, talking about and paying for more than life insurance? 

A necessary evil if you will.

It just feels like a waste – I mean what benefit do you receive from having it?  Abolutely nothing – only your heirs get to see that. 

At least if you need other forms of insurance you can realize something tangible like health or a fixed vehicle or something!

But we all know that we need it – or at the very least, we need to talk about it and come to an informed decision regarding it.

So, when you’re about to make the plunge and start looking at life insurance for the very first time or you are re-evaluating your current situation - answer these four questions before you pay that premium!

1. What’s the purpose of my life insurance

Are you serious?  The purpose of my life insurance?  Isn’t it to pay someone when I die? 

Sort of. 

What I mean by purpose of life insurance is what exactlly are you using it for.  Here’s some examples:

• To provide my spouse with income for life
• To create funds for my children to go to college
• To pay off my mortgage
• To pay estate taxes and minimize the erosion of my estate
• To pay off other debt
• To bury me

As you can see there are multiple purposes for your life insurance and you may have more than one.  

It’s vital to understand why you are buying the life insurance in the first place.

2. How much insurance do I currently have

You might have a million dollars through your group insurance at work and think that you’re good to go.

Wait!  Not so fast – think about it for a second.  If that’s the only insurance you have what about if you lost your job, quit or retired?  What happens to all that insurance?

In most cases it disappears – so do you really have that coverage? 

Yes and no.

You do have coverage, but it’s temporary.  So you need to evaluate how much you have and what kind of insurance you have as well – term, permament or group.

3. How much life insurance do I need

There are countless calculator’s on the web you can use to determine your life insurance needs.  

The amount of insurance you need will vary depending upon what your purpose for the insurance is. 

If you are trying to provide for your spouse for the next 20 years then you’ll probably need more than someone only worried about having enough to bury themselves and pay off some outstanding liabilities.

There’s no hard or fast rule regarding how much you need, but here’s a handy guide from LIFE (Life and Health Insurance Foundation for Education):

4. What kind of life insurance policy should I buy?

Yes, Suze Orman will tell you to only by term insurance.  Others will tell you to only buy permanent (also known as whole life, universal life or variable universal life).

But what kind do you really need?

The answer is it depends.  It depends on the purpose for your insurance and how long you want it to last you.

If you’re concerned about using life insurance for estate planning purposes you probably need something more than term insurance.

If you’re only concerned about protecting your life for 20 years until the kids go off to college then a term product is proably right for you.

Don’t let people tell you that only one type of insurance is right for everyone.  There is no one size fits all!

The bottom line with life insurance

Identify the purpose of the life insurance, do your homework, shop around and do what’s best for your situation.

What about you? What other questions should you ask before you buy life insurance?

Maybe you’ve asked this question before:

“Should I give money even though I am in debt”

- or maybe phrased this way -

“Should I give money even though I don’t have much to give?”

Usually this question can be turned into an objection for giving – such as, “I just don’t have any money to give right now, I’ll start giving once I have a little more.”

This weekend we take a look at whether this is Biblical to wait to give money or not.  Our text will be from 2 Corinthians 8 – a famous passage on giving and a challenging one as well.

2 Corinthians 8:1-4:

We want you to know, brothers,  about the grace of God that has been given among the churches of Macedonia, 2 for in a severe test of affliction, their abundance of joy and their extreme poverty have overflowed in a wealth of generosity on their part. 3 For they gave according to their means, as I can testify, and beyond their means, of their own accord, 4 begging us earnestly for the favor of taking part in the relief of the saints—

I highlighted a couple of key points in this text.  Here’s what we notice:

1. They didn’t let troubles dissuade them from giving (v.2)
2. They gave joyfully (v.2)
3. They were extremely poor (v.2)
4. They gave according to their means and beyond (v.3)

Here’s the ESV Study Bible notes for reflection:

God’s grace was manifested in that the Macedonians gave even though they were poor. What surprised Paul was that the Macedonians also gave themselves first to the Lord (a recommitment of their lives) and then . . . to us; they offered not only money but also any other personal help they could give to Paul.

But I don’t have money to give 

As evidenced by the believers in Macedonia, they gave even though they were extremely poor!  Not just a little poor, not just a little tight each month, but they were in extreme poverty – and yet – they gave abundantly with great joy!

It’s hard to read that and then continue our excuses of why we don’t give enough.

I already give enough

For those who are thinking, “I already give plenty”, this passage is an indicting one as well.

Notice the phrase wealth of generosity in the passage above?  That doesn’t mean they gave enough to satisfy some legal requirement or enough to satiate their own consciences.

They gave abundantly, much more than they probably could have or should have – but they didn’t care about the money!

Why should we give even when we don’t have it

So this weekend, as we sit back and relax and look at all the gifts we gave and received for Christmas take some time to reflect on why we should be generous with our wealth to those in need. 

Here’s three reasons why we should be generous even when we don’t have it:

1. We have more than we think

Be honest, we have way more than we think we have.  Even when we think we have nothing, we have plenty to give.   Our problem is we compare ourselves upward to the next standard of living up rather than down to the next standard of living. 

2. We need to rearrange our priorities to place more emphasis on giving rather than getting

Often times why we don’t give is simply a matter of misplaced priorities.  We view getting ahead, saving and accumulating stuff as more important than giving to those in need.

3. Your greatest return on investment will be giving to the Lord

 If I told you that if you gave me $100 I’d give you back $10,000 would you make that investment? 

Of course you would and yet we have an offer infinitely better than that.  God promises to reward us eternally for the way we give and use our money.

How about you? Do you think we should give money if we don’t have it?

The 2008-09 recession has been one of the roughest ones in history.  Jobs have been lost, lifestyles altered and net worth’s slashed.

There has, however, been a couple positives from this recession - primarily it has forced many people to get rid of debt and begin saving more. 

For some of us it has also revealed what we really put our hope and trust in, and has given us a wake up call that many of us needed (myself included) – namely that we are not defined by our money.

So, what about you – does your money define you?

Before you answer too quickly – let’s take a look at how you could tell if you are defined by your money.

What does ”defined by money” mean?

What does it mean for your money to define you?  Consider these examples:

• Do you feel better about yourself in more expensive clothes?  Or, do you feel better about yourself in clothes bought from the thrift store?
• Do you feel you are more or less of a person based on the car you drive?
• Do you feel embarrassed to have someone over because of your house?  Or, do you love to have people over so they can see your house?

Most of us will be quick to say we are not defined by our money until we start looking at our motivations.  If we are really honest with ourselves we would probably see we are more defined by money than we care to admit.

2 Camps of People Defined by Money

I think there are two basic sides of the fence people will fall on this issue:

The Frivolous

This is an obvious one.  Those who live a wanton lifestyle and constantly need and buy new things even though their old stuff works perfectly fine are essentially defined by money. 

Now wait a second – just because I buy new things doesn’t mean I’m defined by money!

You’re absolutely right!  I agree with you.  But here’s what I’m suggesting – take a look at your motivation for constantly buying the latest and greatest gadgets or upgrading your wardrobe every season or trading in your car every three years:

More than likely what we’ll find if we were to “bare all” is that there is something inside our hearts that wants others to be impressed by us.

Buying things is not wrong unless it’s couched in a motivation to gain recogntion, get people to notice us or simply impress others.  

At that point we become what we buy – we are defined by our possessions!

The Frugal

I can already here some of you saying,

Whoa, whoa – don’t tell me I’m defined by my money – I’m so frugal I’ve been wearing my stone-washed jeans since high school!

Believe me, we’ve noticed.

Frugality is a great thing!  It’s good to manage your money with watchful care.  It’s all part of good stewardship. 

Then how could someone who is frugal be defined by money? 

Some of you are so frugal that you become defined by your frugality.  Your lack of money, your thriftiness or your super-shopping deals are so much of who you are that you are actually defined by it. 

“Wait a minute – that doesn’t seem fair”,  you say.  Again, what’s the motivation.  Is it stewardship – or is it to impress others by the fact that you are so frugal. 

Does your frugality make you feel superior to others who don’t “spend as much as you”?

What should define us?

We are not owners of our money – rather, we are stewards.

Stewards are managers of someone else’s goods.  “The earth is the Lord’s and everything in it”.

Since our money is not our own, we shouldn’t let it define us. 

Even if you’re not a Christian – you are not the car you drive, the clothes you wear, or the house you live in!  You are a person created in God’s image and should be stretching yourself to not be defined by your cash.  

Life isn’t about how much money you have or how frugal you are – it comes down to the quality of your relationships and serving others – that creates a deeper joy.

If you are a Christian you should be defined by the fact that you are a child of God and a steward of His resources.  He has purchased you with the sacrifice of His Son, Jesus! 

No matter how much money you have or how frugal you are, you are a Christ-follower and should use your money to glorify Him, not define yourself.

How about you?  Have you been defined by your money?  What would you like to be defined by?

Should Christians pursue retirement as one of their major goals - or in doing so, are they pursuing something that is in complete contrast to what God has purposed for them?

I think this is a good question to ask, and one that I’ve often wrestled with.

As Americans, we generally want to work for 30 to 40 years, retire with a nice nest egg and spend the rest of our time doing things we really want to do, when we want to do them.

Retirement has become the quintessential American Dream.

But is this something that a Christian should pursue – and does the Bible have anything to say about it?

Retirement in the Bible

After a quick search for the word “retire” in a few different versions of the Bible – I noticed there weren’t many references to view. 

Of those that were listed, all but one had to do with either retiring to bed (going to sleep) or retiring from battle (retreating or pulling back). 

Numbers 8:23-26 was a passage that mentions retirement in terms of withdrawing from labor.  Here’s the passage:

23 And the Lord spoke to Moses, saying, 24 “This applies to the Levites: from twenty-five years old and upward they shall come to do duty in the service of the tent of meeting. 25 And from the age of fifty years they shall withdraw from the duty of the service and serve no more. 26 They minister to their brothers in the tent of meeting by keeping guard, but they shall do no service. Thus shall you do to the Levites in assigning their duties.”

One of the responsibilities of the Levites was to transport and guard the tabernacle. 

So basically what’s going on here is that the Levites who were over age 50 were able to “retire” from carrying the tabernacle, but still served in guarding it.

As far as I know there is no other mention of retirement in the Bible – but does that mean we should throw out the notion of retirement just because it’s not in there?

Rest in the Bible

God’s word has a lot to say about the idea of rest. 

On the seventh day of creation, God rested from all His labor.  God instituted a day of rest in the 10 commandments, and we see Jesus resting and withdrawing from His work often to get refreshed.

But is this rest the same as retirement?  It doesn’t seem like it.  The Bible typically refers to rest as a temporary rest to get re-energized to go back to work. 

So once again, the Bible seems pretty silent on the issue of retirement.  I got to thinking about what a conversation about retirement would sound like between the Apostle Paul and Peter.  Maybe something like this:

Paul: “I’ve been making tents for the last 30 years – my back is just killin’ me – I gotta get out of this business.”

Peter: “Your back is killing you?  Try pulling a giant net of fish into a boat every day!  My dad had me helping him since I was 12 years old – 50 years of catching fish has caught up to me for sure.”

Paul: “Yeah, I wouldn’t mind taking my pension early and getting a nice little place on the Mediterranean.”

Peter: “I hear ya, Jerusalem for the summer and Greece for the winter would be the life!”

There’s no evidence a conversation like that ever took place.  In fact, I would be willing to guess that retirement to a guy like the Apostle Paul was something that never crossed his mind. 

He never wanted to be a burden to people so as to create any barriers to sharing the gospel. 

Should we take the Bible’s silence to mean:

a. Most people worked until they were physically unable to?

b. The Bible is not concerned about retirement?

Usually when the Bible is silent on a particular topic, it allows us to form our own opinion and conviction on the issue.

In part 2 we’ll further discuss the idea retirement in the Bible, look at the definition and re-defininition of retirement and what that means for us.

Wouldn’t you agree it doesn’t take an Ivy League education to be good with your finances?

What’s amazing to me is that many smart people make some really dumb financial mistakes!

It seems like a person blessed with “brains” would be good with personal money management, but sometimes this just isn’t the case.

I’ve talked with many very smart people who are making some very dumb mistakes.

Here’s a look at five of them:

1. Keeping Up With the Joneses

A lot of times it doesn’t matter how much money we make, we still want to keep pace with our neighbors or friends.

This is a sure way to get into trouble.

What’s ironic is that many times those same people we’re trying  keep pace with and impress are buying things they can’t afford with money they don’t have either.

Think of how much better off we’d be if we’d just learn to be content.

2. Spending More Than They Make

I see it time and time again – many smart folks spend way more than they make!

It’s personal finance 101.

I feel like a broken record on this site, but the ONE thing you must do to get ahead is to spend less than what you bring in.

3. Chasing Returns & Investing Emotionally

It seems like some very smart people will change investments so often looking for the next best thing to eke out an extra percent while throwing caution to the wind and completely overestimating their risk tolerance .

Like dogs chasing their tails, they try to catch that elusive “hot stock” or “hot fund” that will help them retire.

Typically, these folks will buy when stocks are up and sell when they’re down.

It’s no wonder that the 2008 Dalbar study showed the return for the S&P 500 for a 20-year period ending 2008 was 8.35% while the average equity investor earned 1.87%!

That’s a lot of emotional decisions and return chasing going on!

4. Borrowing From Their 401ks

This just doesn’t make sense to me, yet I hear about it a lot from some pretty smart people.

Borrowing your own money and paying yourself interest sounds like a great idea – that is until you look more closely at what you’re doing.

The opportunity cost of taking out an investment that could be earning higher than what you’re paying yourself in interest — plus the loss of compounding — not to mention the risk hazard of having to pay all of that money back or end up paying taxes on the money should you lose your job are all things that should scream “NO!”.

Yet, many folks borrow from  First 401k Federal like it’s their own personal bank reserve.  Your 401k should be (one of) the last places you get money from.

5. Leaving Money on The Table

There’s numerous examples of this, but here’s a few of them:

• Not putting enough money into their 401k to fully take advantage of the employer match – some folks don’t put in at all.
• Ever buy something that has a rebate attached to it and then forget to send everything in to collect on the rebate?
• How about automatically renewing your auto or homeowner’s insurance without shopping around to see if there are some better rates or even some discounts to be had.
• Have you ever gotten an insurance policy when you were maybe a little overweight or perhaps a tobacco user and then later you lost weight or quit smoking?  Guess what!?  Your insurance company can re-issue a policy to you with lower premiums!

This is all money that’s being left on the table!

The Kicker

Whether you are “smart” or not really doesn’t make a difference.  You see, we’re all prone to these mistakes.  The “smart” people will be the ones who change their habits and start doing the things necessary to become better stewards.

My goal is not to pick on the smart (or not-so-smart), but rather point out a few areas that we are all prone to making mistakes in.

How about you – What are some mistakes you’ve made?

What are some other things that could be added to this list?

We all make mistakes – some of them are just more costly than others.

When it comes to our retirement savings there’s a host of mistakes that could cost you.

Because companies are shifting the responsibility of retirement on the employees, it’s vital to correct any of these mistakes as quickly as you can.

1. Bad Methods for Choosing Funds

I’m just not sure which funds to choose so I picked what did well last year

Perhaps you’ve found yourself saying that before.  Picking funds based on past performance is a losing proposition because past performance is no guarantee of future results.

An all-star fund could turn into a dog for a variety of reasons.  Don’t rely only on past performance to make your decisions.  

I didn’t know what to pick so I asked my co-worker what he did.

Bob might be a great guy, but he could be a total goofball when it comes to investing.  Sure, he talks a good game, but your needs and goals are different.  Don’t base your investments on someone else.

I figured I’m aggressive so I just went with a more risky stock fund

It’s OK to be aggressive, but using only one or two funds will typically increase your volatility and expose you to greater risk.  You need to diversify the holdings.

2. Not Diversifying Your Investments

Don’t put all your eggs in one basket. 

Diversification simply means spreading your money over various types of funds and asset classes (i.e. small, mid, and large sized stocks etc.).

The reason you want to diversify is because we don’t know what will go up or down in any given year.  You can take advantage of rising stars and also soften the blow on investments that are stinking it up.

Check out MSN Money’s Asset Allocator tool, which is a good start if you are unsure what type of allocation to use to diversify your account.

3. Not Knowing Your Risk Tolerance

I want to make big returns in my 401k without much risk

Really?  Let me know when you find something like that because I’d like to use that too!

Of course we all want to make good returns without much risk, but those investments don’t exist – if they do, they are typically too good to be true.  (Can you say – Bernie Madoff?)

You need to understand your risk profile and how that impacts your decision-making with your 401k funds.

For guidance in this area, here are five questions to help determine your risk tolerance.

4. Not Paying Attention to Company Match

 Although the recession has led many companies to forego their 401k matching programs, there are still some who offer some sort of match. 

A big mistake often made is not knowing what kind of match the company is offering resulting in leaving free money on the table.

If a company is matching dollar for dollar up to – say five percent, it’s silly to only put in three.  You’re leaving an additional two percent out there that could be matched.

At the very least you should be putting enough into your 401k to take full advantage of any money they are going to give you.

Pay attention to the details of your company’s matching program and by all means take what they are willing to give you!

Reaching retirement is up to you, so make sure you are doing all you can to correct mistakes early so you can reach your goals.

“I’d like to retire in 10 years”, Jack said as he sipped his coffee.  “How much do you think I’ll need?”

“It depends” I responded. 

“Well, I read that people these days need at least a million or two to retire comfortably.  Is that right?” Asked Jack as he set his coffee on the desk and leaned forward nervously. 

“Not necessarily.”  I responded.  Jack sat back and sipped his coffee again.  “You know, it really depends on a lot of variables Jack.”

“Like what?”

“Well, for example, what do you plan on doing in retirement?  Do you want to travel the world, play golf every day and buy a lake house?”  I asked.

“I would like to play golf a few times a week and take a nice vacation once or twice a year.  Other than that I live a pretty simple life.”

“OK, that’s a good start, tell me a little more.  Do you owe anything on your mortgage or have any other liabilities?” I asked.

“Yes.  I still owe on my mortgage and I have a home equity loan that I took out to help pay for the kids college tuition” Jack responded. 

“We also have some credit card debt, probably about average for most people right?” Jack asked looking for some reassurance.

“Yeah, a lot of people have those things, but that will have an impact on you.  Have you saved anything for retirement or will you be getting a pension from work?” I asked.

“Yes, I have a 401k  I’ve been saving into for quite a few years and a couple of small Roth IRAs.  Plus I will get a pension from work.” Jack replied.  “But don’t I need 70 or 80 percent of my income in order to retire?  I’m not sure my pension and social security will be enough”

“There are no hard and fast rules Jack” I answered. “Every situation is different.”

“Well, how much will I need to retire then?”

Although the above conversation is fictional, it represents a fairly typical dialogue that I have on a regular basis.  Most people want to know a set dollar amount saved or percentage of income needed for retirement.  Unfortunately, it’s just not that simple.  Here are some things to consider when determining how much you’ll need for retirement.

Photo by Krazy Kake Bakers

 

 

Income & Assets

Take stock of your income.  Will you be receiving Social Security or a pension?  Will you be working part-time, doing consulting work or turning your hobby into a business in retirement?

Have you saved into your 401k or built up other assets that can be used for retirement.  According to a recent study by AARP, a safe withdrawal rate (or percentage you can safely withdraw from your principal without running out) is four percent.  Most people don’t pull out a steady percentage, but typically will do an “as needed” approach.  According to the study, If you have $500,000 saved up, you can safely withdraw $20,000 annually and not tap the principal. 

Expenses & Liabilities

Income and assets are very important, but to me these are the bigger items to look at.  Take inventory of your expenses and liabilities.  Will you need to buy your own health insurance or will you protect against a possible need for assisted living or a chronic illness?  Do you plan on traveling the U.S., buying that golf membership or spending money on a vacation home?  These things will obviously dictate how much income you need? 

Do you still owe on your mortgage and credit cards, or are you debt free?  If you have no debt and a fairly simple lifestyle you will be able to retire on much less than if you want to travel the world and you already have all kinds of liabilities.

Short Answer and Simple Calculation

The short answer to the question, “How much money do I need to retire?” is “It depends”.  Because every person and situation is different there are just no hard and fast rules to help determine what’s appropriate. 

The simplest way to calculate how much you need is to add up all your sources of income and subtract out your planned expenses in retirement.  If there is a shortage, you will need your savings to supplement.  If the amount needed is greater than four percent, then you probably need to save more or push back your retirement date.  If that amount is less than four percent then you have done a good job of minimizing expenses and maximizing your income and assets and your retirement picture looks much better.

Consider these general guidelines as a starting point.  Every situation is different and unique.  If you want to delve more  in depth into this question of how much is needed, there are many great retirement calculators on the web that will also take inflation and your rates of return on your savings into consideration. 

Bottom Line

Save more, spend less, get rid of debt and live a fairly simple lifestyle and you will be headed down the right path.