How Much Is Enough? How Do You Know If You Are Earning or Saving for Perfect Happiness?

If there was a million-dollar question, it might be, “How much is enough?” (Although in your case, it might be a $50,000, $200,000, $500,000, $5 million, or $10 million question.) Regardless of the value, the truth is that we all want to know how much savings or income we need, and the answer depends entirely on you: your values, your goals, and your priorities.

Knowing how much is actually enough is a real problem for many people.

Some of the most popular articles on the NewRetirement website have addressed the problem of knowing how much is enough. People are terrified of spending their money, and a surprising number of them actually over-save. (Over-saving is more common than you think. Find out why. And if you think you’re saving too much, get advice from real people like you.)

Knowing how much you need as well as feeling confident that your savings will last is the main driver of using a new retirement planner where you can get reliable and personalized answers to these questions.

10 Ways to Determine How Much Is Enough

1. Go over the limit, then back off.

“The only way to know how much is enough is to do too much, then back off.”

Jerry Jeff Walker

Country singers always have the best answers to life’s most pressing questions. Jerry Jeff Walker, known for his hit song Mr. BojanglesThis might be a good formula for knowing how much is enough: go over the limit and then back off, perhaps by overspending.

The problem with this strategy is that you are using your most valuable resource (your time) while earning a lot.

2. Run your own race (not the Jones family’s race)

If you are constantly trying to keep up with others, you may never feel like you have enough. One of the keys to happiness is knowing what is important to you and focusing on your own priorities.

If you want to know if you have enough, it’s best to focus on what’s important to you and determine how much you need to achieve the life you want.

Understanding average retirement income can be an interesting metric, but it should not be used to determine how much is enough for you.

3. Trust the happiness researchers (you need an annual income of about $100,000)

In 2010, Nobel Prize-winning psychologist Daniel Kahneman concluded that money only affects emotional well-being up to about $75,000 a year (adjusted for inflation to $108,000 in 2024).

Kahneman, a research associate at Princeton University, has shown that earning up to this income threshold (more or less depending on location) has a significant impact on both daily happiness and overall life satisfaction.

If your income is less than $108,000, earning more money will make you happier. But increasing your income beyond the inflation-adjusted $108,000 is unlikely to add any more happiness, enjoyment, or satisfaction to your life.

4. It may be enough to make less than what you actually earn (66% less)

a reconnaissance A recent study by T. Rowe Price of recent retirees with balances in 401(k) or rolling IRAs found that you can live comfortably on much less than you earned before retirement.

The report notes that after nearly three years of retirement, most retirees are living on just 66% of their pre-retirement income (on average). And they’re happy with that.

5. Gain financial independence

The FIRE movement is a movement of people who focus on controlling money rather than being controlled by it. The goal of FIRE followers is to have a savings amount to live on where they can make decisions based on enjoying life to the fullest and without the pressure to earn more. They want to be free from having to earn money, although many have successful side businesses.

Early retirement advocates generally say that 25 times your required annual expenses is enough. So, if $50,000 a year is enough for your comfortable life, you need to save $1.25 million. (If your goal is $100,000, you need $2.5 million in savings.)

6. Try a thought experiment.

There’s a thought experiment attributed to Brad Stollery making the rounds on the internet. It’s a short story designed to help you think about what’s really important to you and what’s enough to live the way you really want to.

there he is:

Suppose you are one of five people selected by a mysterious benefactor to participate in a contest. The five of you are similar in terms of debt levels and living costs, as well as similar middle-class financial situations. You are all roughly the same age, in good health, with the same number of children, and all living fairly low-risk lifestyles. In private, one by one, a representative of the benefactor approaches you with a blank check and a pen, and poses the following question:

How much money would you have to have, here and now, in order to retire today and not receive another dollar of income (from any source) for the rest of your life? [And, for reasons of simplicity, let’s just say that inflation is not a factor. The number is in today’s dollars. And, there are few, if any risks, that would eat into the sum of money.]

The problem this time is that whoever writes the lowest amount on the check among the five players will get that amount, while the other four players will get nothing.

How much will you write down? (You can use the financial independence formula above to help estimate your amount.)

7. Know how much you can enjoy.

“It’s not how much we have, but how much we enjoy that makes us happy.”

Charles Spurgeon

Charles Spurgeon was a 19th century preacher. With this quote, he makes the very rational assertion that enough is what you can enjoy. Spending can become a treadmill for pleasure, or a burden if you let it run your life. It’s possible to lose focus on truly enjoying what money can buy when you earn and spend too much.

Too often people strive for more without appreciating what they have. One of the secrets to happiness is to be content and grateful for what we have.

8. Focus on income, not savings.

When determining how much you need, many people focus on saving. However, the real trick is determining how much income you need and how to turn your savings into the salary you want for the rest of your life.

A new retirement planner can help you do these calculations. You can see your estimated annual income, including withdrawals from savings, Social Security, and more. You can also discover strategies to increase your salary.

It’s also a good idea to review your cash flow to make sure your income is equal to or greater than your spending.

9. Calculate what you will actually need.

You can’t know if you have enough savings until you calculate what you will actually need.

Forecasting your future budget is the right step towards setting your savings target and knowing how much is enough. NewRetirement Planner can guide you step by step to a future budget. You can document your total spending for different stages of your life. Or you can truly envision your future by recording your expected and estimated necessary spending in over 75 different categories.

The tool also helps you get a personalized estimate of your medical costs, will help you calculate debt repayment, and more.

10. Calculate what you will actually need (and cover potential risks/worst case scenarios)

But once you know how much you need and want to spend, you’ll only know the bare minimum amount that’s enough. You also have to plan for the unknown: inflation, stock market corrections, climate disasters, a major health crisis, longevity, and more.

A new retirement planner can help you think through the worst-case scenario and identify financial strategies to cover you no matter what happens.

Then you will truly know how much is enough for you.

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