Thank you for joining me for Episode 12 of my Money Wisdom Question Series, where I film answers to common financial and retirement investment questions. Today I’m answering the question, “How do I know how much money I need to retire?” Will, what I have saved be enough?
The first thing you have to do is get a handle on how much retirement income you want. The best way to do that is to say, “If I was retired today, this is how much money I want coming in every single month.” While you’re doing this, forget about inflation and everything that you’ve already saved.
Figuring out this number will be the money coming in every single month that you can spend. Let’s say your number is $10,000 a month. Then what you have to do is project out to when your retirement date really is. Let’s say it’s 10 years from now. You’re going to need to save more than $10,000 a month because of inflation. During that 10-year period, the cost of goods and the cost of services that you buy will go up. So, maybe instead of $10,000 a month, you will need $15,000. Again, that’s an arbitrary number.
Now, you have to go back into how much do you have saved? What are your guaranteed sources of income? Project out what rate of return you’d get on your savings and then what’s your withdrawal rate.
It gets a little complicated, but here is a pretty good rule of thumb:
If you want $10,000 a month when you retire, pretend you have no guaranteed source of income no Social Security no pension, you need to have somewhere around $2 million. Maybe $1.5 million or so saved. But you can reduce that much so don’t become discouraged. You can reduce that much by any kind of Social Security that you have. If you’re married your spouse may have Social Security. If you’re a teacher and you don’t get Social Security, you might get a pension.
It’s not that you need your savings to cover the entire $10,000 a month. You need your savings to cover the shortfall between your guaranteed sources of income and what you want up to that $10,000 a month.
It’s hard to answer that question on the fly, but I wanted to give you a general rule of thumb. You figure whatever lump sum you’re going to have will generate between 5 to 7 ½ percent interest. Again, you might be spending it down. 5-7 ½ percent is what you can probably earn reasonably on retirement savings without running out of money in retirement (those are ballpark numbers).
Thanks for joining me and I hope you found this information helpful! P.S. If you enjoyed this topic and you want to hear more, you’ll love this blog article where I talk about a similar subject.
P.P.S. Feel free to submit questions here for a chance to have them answered!
“We always felt our financial needs were in very capable hands. Alex Angst is great to work with. Our advisor always made us feel he had our best interests at heart and explained things so we could understand them.”
“We’ve been clients of Johnson-Brunetti for > 10 years. We’re enjoying a comfortable retirement as a result. Many thanks to Joel and our CFP, Eric Hogarth. I wish we had plugged into this decade approach back when we were in our 30s.”
“Working with Johnson Brunetti has had a positive impact on my life by providing me with the knowledge, confidence, and peace of mind to move forward with my retirement plans. The process of getting to this point, through their guidance, has been informative and pleasurable.”
“I view your company as one that puts my interests first. I think that is very uncommon and very refreshing. “
“Matt does an awesome job! So easy to understand and he listens to our concerns and addresses them! happy I chose your firm!”
“I have been pleased with the help and service I have received from the company. I have met several team members on Eric’s team and have found all of them very well prepared to meet with me when reviewing my portfolio. I always feel that I am an important customer and appreciate that very much. I hope the firm continues to focus on the customer and maintains its great service. I think you do a great job for someone like me!!!! I’m happy I chose your firm!”
Investment Advisory Services offered through JB Capital, LLC.
Insurance Products offered through JN Financial, LLC.
Atlanta • Boston • Hartford | Tel: 800-208-7233
JB Capital LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. Information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.
Johnson Brunetti is a sponsor of WFSB Better Money, WCVB Better Money Boston, WSB-TV Better Money Atlanta, WTNH Money Wisdom, and WTIC Money Wisdom.