Living on what in retirement?

You have probably seen the ads for investment firms or financial planners. You need $1,000,000 to retire, OR How much do you need to retire? Perhaps you heard you need 10 to 12 times your last year of working income is a good goal.

The fact is only you know what you will need and what you will need is based on how you want to live in retirement.

I strongly suggest you start by “needing” an income the same as your pre-retirement income.

I know, experts say spending will be less in retirement. I say balderdash if you include a discretionary (enjoying yourself) spending lifestyle. Relaxing away your days rocking on the front porch of the family home are over. Those were days when retirement lasted five years.

So, if you earn an income of $75,000 today, your goal is a $75,000 income in retirement. If you consciously lower spending by relocating or downsizing, so be it, that’s gravy to spend for fun or for emergencies.

How much will household (include spouses benefit) Social Security replace? Get an estimate here.

The rest is up to you. Look at what you have saved for retirement and apply your comfortable withdrawal rate. The most common assumption is 4% of your retirement funds each year assuming you are invested in a mix of stocks and bonds that grow and fully offset inflation.

If your income replacement number (above what Social Security provides) is $50,000 your goal to save for retirement is about $1,250,000. Your goal can be less if you set your replacement percentage at less than 100%, but plan carefully.

Remember, the later you start collecting Social Security, the higher your benefit will be.

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