The most important retirement card you'll ever see – The Motley Fool

Saving enough money to retire is crucial to your future financial stability. Your retirement investment accounts should be an important source of income during the golden years, especially since social security benefits are only intended to replace approximately 40% of pre-retirement income. Simply put, social security benefits are not enough to live on.

Unfortunately, it is not so easy to figure out how much to actually save for retirement – and that is why more than half of Americans do not know how much money they need to withdraw comfortably. This lack of knowledge is just one reason why the chart below is so important – and is perhaps the most important retirement chart you will ever see.

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The Most Important Pension Chart You Will Ever See

The chart below shows how much income different retirement account balances will yield if you follow the 4% rule. The 4% rule states that you can withdraw 4% of your retirement account balance in the first retirement year and then adjust the upward withdrawals for inflation each year. While some argue that you should withdraw less than 4%, this can give you a basic idea of ​​how much income hedge eggs of different sizes will provide.

The diagram also shows how much you need to save to collect the retirement account balance needed to produce each income amount within the age of 65. It is based on the assumption that you will save the same amount every year and that you will earn 7% return.

Table Calculations: Author

Why is this chart so important?

There are a few reasons why this chart is so important. First and foremost, it can help you set a realistic savings goal. If you estimate that you want $ 60,000 in annual retirement income from your retirement savings, you know that you have to save between $ 832 and $ 4,732 per month if you start saving anywhere between 30 and 50 years. This can help you get at least a rough idea of ​​how much you should save for retirement – although you should do the calculations to find out exactly how much you need.

It also shows that even a large nest egg will probably only produce a small income. If you have saved $ 500,000 in retirement, it will only produce $ 20,000 in annual income if you follow the 4% rule. In 2019, the average monthly Social Security benefit was $ 1,461. If you had a nest egg of $ 500,000 and received average social security benefits, you would have a household income of only $ 37,532. Median weekly earnings in the second quarter of 2019 were $ 908, representing an annual revenue of around $ 47,216. That means $ 37,532 will give you about 79% of your pre-retirement income if you earn the median – which may not be enough. And unfortunately, most people have not – and will not – have saved anywhere near $ 500,000 in retirement.

Finally, the map shows the importance of starting saving as early as possible. If you start saving just over $ 300 a month at age 30, you could end up with around $ 600,000 invested at age 65. But if you start saving this amount at age 50, the nest egg would only grew to around $ 100,000. Similarly, starting to save $ 1110 per month at age 50 would give you less than $ 400,000 for retirement, while the same amount set aside from age 30 would give you around $ 2 million. Of course, this chart should strongly encourage you to save ASAP because it is much easier to save smaller amounts over a longer period of time than to make huge sums later in life.

Start saving for retirement today

As the chart makes clear, you can't afford to wait to save for your future if you want your retirement investments to produce a reasonable amount of income. Start investing as much as you can for retirement today, and hopefully you can hit the $ 1 million or even $ 2 million mark needed to earn a hefty income during senior years and enjoy retirement life to the fullest.