Week 12: How do I calculate my retirement number?

• Everyone’s situation is different so the idea that there is “a number” out there for each of us is a pretty flawed premise to start with.

• At the same time, financial plans have to be flawed and because they are almost immediately obsolete. Assumptions about market returns, inflation, tax rates, how much you will earn or spend in the future is unknowable.

• What’s most important is that you have a plan that you will adapt and grow with as you approach your financial independence destination.

What follows is a simple step-by-step process to start this process:

Estimate Your Annual Retirement Expenses

Start by figuring out how much money you’ll need each year in retirement. A common rule of thumb is to plan for 70%–80% of your pre-retirement income, but the most accurate approach is to budget based on your desired lifestyle:

• Housing (rent/mortgage, property taxes, maintenance)

• Food, transportation, insurance

• Travel and leisure

• Healthcare

Look at your current monthly spending and start with the 80% rule just described. Is that realistic? What would need to change if it is not?

Factor in Non-Investment Income

Will you have income from Social Security, pensions, rental properties, or part-time work? Subtract this from your annual expenses.

📌 Example:
You expect $20,000/year from Social Security.
$60,000 - $20,000 = $40,000 needed from savings.

Apply the 4% Rule

The 4% rule is a rough guideline that says you can withdraw 4% of your retirement savings each year without running out of money over a 30-year retirement.

To find your number, multiply your annual savings need by 25.

📌 Example:
$40,000 × 25 = $1,000,000

Adjust for Your Unique Circumstances

The 4% rule is just a starting point. You may need more or less depending on:

• How long you expect to live

• Market conditions and inflation

• Whether your expenses are expected to rise or fall over time

• Your risk tolerance and investment strategy

Below is an example of how a financial plan will make assumptions and estimates. While the 4% rule is one approach, this couple will not take IRA distributions until required at 75, electing to work until retirement at age 70 and work part time until age 80. The 4% rule is irrelevant for this family as just one example.

Build a Plan

Once you know your number, the next steps are:

• Assess how much you’ve already saved

• Calculate how much to save each month to reach your goal

• Invest with a strategy that matches your time horizon and risk level