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Do You Know Your Personal Retirement Number? Thumbnail

Do You Know Your Personal Retirement Number?

Do you know how much money it's going to take for you to be able to retire comfortably and then to remain retired comfortably? That's a loaded question and one that I find no one has seems to have the answer to. What if I told you how to come up with that mystery number? Wouldn't that be a great place to start when planning for retirement? I'm going to show you in a few simple steps how to determine your personal retirement number. There are a lot of things that can happen in life so this is a ballpark number but it’s also a great starting point - and it gives you something to aim at.

Step 1

Imagine that you're retiring not in 20 or even 10 years, but at the end of this month. Imagine that next month is your first full month of retirement. Now, over and above Social Security and over and above any retirement pensions you may have coming in, how much monthly income will you need to sustain your lifestyle next month? 

Desired Monthly Income = $8,000

Social Security Monthly at 62 (as an example) = $2,000

Retirement Pensions Monthly = $0

Monthly Difference = $6,000

You will need to produce $6,000 from your retirement savings monthly to sustain your lifestyle during retirement.

Step 2

I apologize for the simplicity in this step, but it's necessary in order to paint the entire picture. We established in Step 1 that you need to produce $6,000 monthly from your retirement savings. Now we need to make that amount a yearly amount.

Monthly Difference = $6,000

Months In A Year = 12

Yearly Amount Needed = $72,000

I told you that this was going to be simple. You need to produce $72,000/yr ($6,000 x 12) from your retirement accounts.

Step 3

If you are retiring next month and you need $72,000/yr from your retirement accounts use the number one (1) where it says "Years Until Retirement.”

But what if you are retiring in 10 years from now? That number won't be $72,000/yr. It will be $72,000 plus inflation. Read more about inflation and how it affects your retirement here. 

Inflation historically averages between 2% and 3% per year. For this example we will use 2%.

Yearly Amount Needed = $72,000

Average Inflation = 2%

Year Until Retirement = 10

Yearly Amount Needed in 10 Years = $87,768

In 10 years from now we will need $87,768 just to have the same purchasing power as $72,000 has today. When calculating retirement needs it is crucial to include inflation. This is a time value of money calculation performed on a financial calculator. I won't bore you with the keystrokes to calculate this number. Just trust me here (but if you want the exact keystrokes, shoot me an email and I'll gladly give them to you.) Or just google “inflation calculator.”

Step 4 

Retirement can last 20 to 30 years. For this example we will use 20 years.

Yearly Amount Needed in 10 Years = $87,768

Estimated Retirement Length = 20 Years

Amount Needed To Retire = $1,755,360

Now what just happened? We took the amount you needed in 10 years and multiplied it by the estimated length of your retirement of 20 years. $87,768 x 20 = $1,755,360

What if we were retiring in 1 year? $72,000 x 20 = 1,440,000. 

There you have it. That's your personal retirement number. Remember... this is a ballpark number but it’s also a great starting point - and it gives you something to aim at.

If that's not clear enough shoot me an email and I'll help you figure out your number. bcoleman@8020finacialservices.com

You Need A Plan

A goal of retiring - without a plan to get there - is simply a plan to never retire. Retirement isn't some magical age. It's a dollar amount. If you're age 50 or over and still in the accumulation phase (pre-retirement) we can help you figure out where you need to go and how to get there. If you are retired or nearing retirement, we can create a plan which will outpace inflation and possibly leave a legacy to your family. The consultation is free and without obligation. Contact us to set up a consultation.

For more articles about retirement planning and investing click here. Also for a great read on the 80/20 Principle check out this book.

Thanks for reading!

Brian Coleman/Retirement Planner/Investment Manager

80/20 Financial Services is an independent Registered Investment Advisory Firm. Our focus is working with retirees, and we specialize in working with retirees who are approaching or going through the retirement transition. We are located in Ozark, MO but we have the ability to work with clients throughout the United States. Contact us today for help with your retirement needs.

Photo by Roman Mager on Unsplash