How Much do I Need to Retire?

Let’s hop in the time machine and think about your future-self.

I get this, “How Much?” question more than most.  It depends entirely on what your future-self wants.  But, I am not going to leave you with the answer of, “It Depends…”

Going to downgrade and roam the land in an RV on a shoestring budget?  How about going big and moving down the shore?  But, let’s consider maintaining your current  lifestyle.  Since you are saving about 20% a year, you don’t need to do that in retirement.  (You are doing that, right?!). So, you’ll automatically live on less.

So, you’re not doing that?

Then, let’s work off current expenses.  Imagine you want to live on $100,000.  Here are some quick and possibly really inaccurate rules of thumb:

#1.  Divide the amount you want by 4%.  In our example, that comes to $2,500,000.  (100,000/0.04=2,500,000)

Feeling riskier?  Divide it by 5%.  You get $2,000,000!  I lean towards having too much.

#2.  Take your expenses and multiply it by 23.  You get $2,300,000.

#3. Lastly,  use the new IRS Single Life Expectancy Chart* for your calculation.   Simply pick your retirement age then multiply that number by your expense amount. This a dynamic approach as it takes in early and late retirements.  If you want to retire at age 55, you would multiply by 31.6.  In our example the answer is $3,160,000.  At age 70, multiply by 18.8, and the answer is $1,880,000.  I think this method actually underestimates your life expectancy of your future-self and gives you a target that is too low!

As a pro, who has done this for over 2 decades, I like rule of thumb #1 using 4%. It can still be off, but gives you an easy math problem for a hard question!

* I am a big fan of Ed Slott!  Check out the new tables at his site! 

https://www.irahelp.com/slottreport/new-2022-irs-life-expectancy-tables-available-here