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How Much Money Do You Really Need to Retire?

September 08, 2021

Retirement is in your future … somewhere, out there. Commercials tout “knowing your number”. What number are they talking about? “Your number” is the amount of money you need to have in investments and savings when you retire. Finding your number is a major focus of retirement planning. How much money will you need by the time you retire to ensure that you can retire with your desired lifestyle?

Your number will be different than my number. And your number will be different than your neighbor’s number. Why? Because we have different visions of our retirement. We have different circumstances that we must consider while planning for retirement. And we are starting and ending at different ages. The good news is that the only number you need to worry about is YOUR number.

Knowing your number helps you properly plan for retirement. It can let you know if you are on track for retirement or if you need to tweak your investment strategy.

The truth is, it is hard to know your number when there are so many unknowns. That is the challenge: planning for a future with so many unknowns. And it’s not just that there are unknowns, but the unknowns are often out of your control. Don’t let this stop you. You need to know your number because your future is coming whether you plan for it or not.

The good news is that studies have shown that people who set goals (& have a plan) are more likely to achieve their goals than people who do not set goals. The odds of achieving a goal are even greater for people who write down their goals. And if you have an accountability partner, the odds for success are even greater. Goal setting has proven to be so successful that children, as early as elementary school, are taught the SMART method of setting goals. A goal should be:

S = specific

M = measurable

A = attainable

R = realistic

T = time-based

Knowing your number is a goal worth setting.

Rest assured. You do not need to know the future to plan for your future. When it comes to personal finance, planning sooner versus later will always benefit you. The best time to start is now.

Most of us will need to back into our number. You can do this by answering these three questions:

1.) What age do you want to stop working? Studies show that while most people expect to retire at age 65, the average age of retirement is actually 62. This is often due to circumstance not choice.

2.) How much do you expect to spend in retirement? If you don’t know this, assume your spending will stay the same as it is now. It often does, at least in the early years of retirement.

3.) Will you have any additional sources of income beyond your savings/investments? (part-time job, pension, social security, inheritance, etc.)

With this information, you can identify how long you need your money to last and how much income you will need to pull from your investments.

The sooner you know your number, the more time you have to evaluate if your number is the right number or if you need to make changes to improve your number. A good time to start fine tuning your number is when you are 10 years out from retirement. A 10-year window gives you time to make changes if changes are needed and gives you time to prepare for the unknowns.

What unknowns are we talking about? Three come to mind.

1.) Sequence of return risk: Will the value of your savings/investments be up or down when you retire? Will the value fluctuate during retirement?

2.) Inflation risk: What will be the effect of inflation on your spending power?

3.) Longevity risk: Will you outlive your money?

No one knows the answers. They are, well, unknown. But we know that they are risks. And with a 10-year pre-retirement window, you have time to make decisions to minimize your risk.

Begin today to identify your number. Understand the power your number can provide. Be realistic about the decisions you are making today that impact your number. It starts with a plan, with a goal. Your number is SMART: it is specific, it is measurable, it is attainable (with enough time and discipline), it is realistic, and it is bound to time.

Find the peace of mind that comes from knowing your number. And see how it drives you toward retirement with knowledge, confidence and eagerness for your next chapter.

If you are unsure how to start or need guidance along the way, reach out. We are happy to help.

Securities and Advisory Services offered through The Strategic Financial Alliance, Inc. (SFA) – Member FINRA, SIPC. Advisory Services also offered through Strategic Blueprint.

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. The SFA does not provide tax or legal advice.