What is My Retirement Number?
May 2021

One of the most common questions we get as financial planners is “how much money do I need to have saved before I can retire?” And the answer is one that we as financial planners commonly give – “it depends.” Determining the amount of savings you need to accumulate before retiring is highly specific to each situation. One family might be fine with $500,000 of savings while another would need to save $5 million before retiring. The good news is that you only need to know two data points and simple math to calculate an initial estimate of retirement savings needs: 1. How much recurring income will you have in retirement (Social Security, pension, rental income) and, 2. How much will you spend each year in retirement. The Retirement Income forecast is often easy to glean from historical data and estimated benefit statements. The spending forecast can be more challenging as it requires knowing what you currently spend annually and projecting how that spending may change in retirement. Annual spending amounts are not commonly known even though the data is often available in various places. A best practice is to continually collect your spending data with some automated tool like Quicken or Mint. Banks also frequently offer spending tracking tools to their customers. In absence of an automated solution, one can determine their annual spending on an ad-hoc basis by reviewing twelve months of recent bank and credit card statements. Once you have determined what your current annual spending amount is, you need to make adjustments for how the spending might change in retirement. For example, the current spending might include things that will end at some point in the future, such as a mortgage or education expenses. You now have your Adjusted Retirement Spending forecast. With this number and your Retirement Income forecast, you are ready to calculate your Retirement Savings Number. Start by subtracting your Adjusted Retirement Spending number from your Retirement Income number. This is the amount of spending not covered by recurring income that needs to be covered by your savings. Divide that number by .03 and jot it down. Do the same calculation again but divide by .05 instead of .03. This will give you a general range of what you need to have saved before retiring (see example below). It is important to know that this method will give many people a needed retirement savings range but there are individual circumstances that would cause this simplified formula to yield a range that is inaccurate. If you want to actually determine your Retirement Number versus estimate it, you should visit with your local fee-only financial planner for a customized analysis.

Example:

Retirement Income (Social Security) $40,000/yr

Adjusted Retirement Spending $75,000/yr

Low end of range of savings needed: ($75,000-$40,000) / .03 = $833,333

High end of range of savings needed: ($75,000-$40,000) / .05 = $700,000

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Pathway Financial Advisors, LLC-“Pathway”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Pathway. Please remember that if you are a Pathway client, it remains your responsibility to advise Pathway, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Pathway is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Pathway’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note : Pathway does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Pathway’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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What is My Retirement Number?
May 2021

Financial planning for life

Your best interests. Our first priority.

Our sole purpose is to be your trusted advisor.

We work with our clients to identify opportunities, limit financial risks, minimize tax liabilities, and plan a lifetime financial strategy.

We work out of offices in...

Fee-only, individualized service suits our diverse clientele.

Find resources for...

What is My Retirement Number? May 2021

What is My Retirement Number?
May 2021