What Is Your Number – How Much Do You Need to Retire?
I’d say the number one question people come in and ask me is what is their number? That is, what is the amount of money they need to have comfortably saved, in investments, to be able to retire. The thing most people don’t realize is there isn’t one magical number for everyone.
For instance, two school teachers who made $180,000/year and have 2 pensions, are not the same retirement figure as two doctors who make $1,000,000/year and have no pensions. Similarly, if I spend $10,000/mo in expenses and you spend $20,000/mo in expenses it also isn’t the same number.
Now, figuring out not only how much one needs, but how to maximize it, how to get there, how to draw it down most effectively, and how to get really detailed on figuring out what that number is happens to be high-level complicated stuff. As a matter of fact, it is so technical and complex I, along with all the other planners at Diversified, LLC, have made a career out of it. We are constantly working on this craft to help guide people to figure their number out and adjust with them as this number is ever-changing.
There are tons of variables to getting it right, and then the number is generally wrong. Below is a list of some of the items that go into a complicated process to try to hone in on your rough figure:
- Risk tolerance
- Retirement fixed incomes
- Big expenses in retirement
- Investment process
- Life expectancy
- Tax rates
- Charitable wishes
- What state you will retire in
- Health care expenses
- Asset location
And this is just the tip of the proverbial iceberg.
Needless to say, there is quite a bit that factors into this answer. For me, I truly love trying to put one’s unique retirement puzzle together. When you’ve been doing this as long as I, you have seen basically every variable known to man. Some are easy to tackle and some take a lot of research and industry experience. But enough about the difficulties, as this blog is about figuring out your number in less than a minute.
Ok so forget all the preamble of me justifying my worth, ha. Let me give you a quick down and dirty way to stress test what you actually need saved for retirement. Again, my disclaimer is this is simply a way at home in 60 seconds to get a feel if you are on the right track or not, it is not a replacement for actual planning.
What is it already!
Here goes nothing. To figure out your “number” take a pen and paper and write down what you think it costs to be you on an annual basis. Do you spend $100,000/yr? $150,000/yr? Again, this is meant to be done in 60 seconds, so don’t worry about it if you aren’t exact. Also, may I suggest you round up. Most people grossly underestimate their living expenses. Thus, if you think it is around $100,000-$120,000 then use the $120,000 figure. I’ll give you all 30 more seconds to write that down. Next, take that figure and multiply it first by 20, then by 25. This is the very rough number you’ll need to have saved for retirement.
Client Mr. Musk spends $10,000/mo or $120,000/yr to live. If I multiply that by 20 it comes out to $2,400,000 and if by 25 comes out to $3,000,000. For Mr. Musk his ideal retirement savings is somewhere in that 2.4M-3M range.
Simple enough right?
What is your retirement number?
I’m curious was this an easy exercise for you? What was your actual number? Are you on track to get there or not?
Again, in reality, this is a very esoteric process with hundreds of variables. That said, I find it helpful to have a simple trick at home to give yourself a gauge as to what that number is and are you trending in the right direction.
Hope you enjoyed this neat little hack and as always stay wealthy, healthy, and happy.
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