Figuring out how much you’ll need to retire is an important step in planning your retirement. You’ll need enough money to cover the usual bills, as well as some extra for unexpected expenses. Depending on your lifestyle preferences and what age you plan to retire, you might need much more — or less — than the next person.
According to the National Center for Health Statistics, the average American lives to be 77 1/2 years old. If you want to retire in five years and are currently 45, you’ll need a lot more cash than, say, someone who’s already in their 60s planning to retire.
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That’s a lot to figure out, so GOBankingRates asked ChatGPT for a quick answer using this prompt: “How much money will I need to retire in five years?” Here’s what it said.
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Quick Answer: It Varies
“Determining how much money you’ll need to retire in 5 years depends on several factors, including your desired lifestyle, estimated expenses and current savings,” according to ChatGPT.
Basically, there’s no one-size-fits-all answer — which probably doesn’t come as a surprise. The AI tool did provide a structured approach to help you figure out how much you’ll need to retire, though.
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A Seven-Step Breakdown
Here’s a breakdown of the steps it provided.
Estimate Your Yearly Retirement Expenses
“This includes housing, healthcare, food, transportation, taxes and discretionary spending,” ChatGPT said. “A common guideline suggests that retirees may need about 70% to 80% of their pre-retirement income to maintain their standard of living.”
Say you earn $80,000 now. Expect to spend between $56,000 (70%) and $64,000 (80%) annually in retirement.
Follow the 4% Rule
“The 4% Rule is a popular method for estimating how much you need to save for retirement,” ChatGPT said. “It suggests that you can withdraw 4% of your retirement savings annually without running out of money for at least 30 years.”
ChatGPT didn’t mention this, but be sure to adjust your annual withdrawal amount for inflation.
Find Your Target Retirement Savings
The 4% rule works best when you combine it with the 25x rule, which gives you a general idea of how much money you’ll need to save. According to ChatGPT, the formula is annual expenses multiplied by 25.
So if your expenses total $60,000 a year, you’ll need $1.5 million to retire ($60,000 x 25).
Think About Your Current Savings and Investment Growth
“Given that you plan to retire in 5 years, it’s crucial to assess your current savings and the potential growth over this period,” ChatGPT said.
Say you have $300,000 in an account with an average annual return of 6% and you contribute $10,000 annually. You’ll have nearly $500,000 after five years. Ask yourself whether that is enough to retire.
Adjust for Inflation
While not directly related to the 4% rule, ChatGPT did suggest adjusting for inflation, which can erode your purchasing power over time.
“Assuming an average annual inflation rate of 3%, your estimated annual expenses in 5 years would increase,” ChatGPT said.
Use Retirement Calculators
ChatGPT also suggested running the numbers yourself using an online retirement calculator. Doing so can help you get a personalized view of your retirement savings and plan.
Consult With a Financial Advisor
“Given the complexity of retirement planning, especially with a 5-year horizon, it’s advisable to consult with a certified financial planner,” ChatGPT said. “They can help you develop a personalized retirement strategy, optimize your investment portfolio, plan for taxes and healthcare costs [and] address any gaps in your retirement savings.”
Notably, ChatGPT gathered this information from many sources, including AARP, U.S. Bank, Nasdaq and SmartAsset.
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This article originally appeared on GOBankingRates.com: I Asked ChatGPT How Much Money I’ll Need To Retire in 5 Years: Here’s What It Said
