Forget detailed budgets, finite calculation.
Let’s make this simple and see what happens.You are age 65 and want to retire January 1, 2022, You earn $60,000 before taxes, which, using the Social Security Quick Calculator, provides an annual benefit of $17,148.
That means (according to my strategy) that you need to generate additional gross income of $42,852 to start retirement replacing 100% of your gross pre-retirement income. I use gross income to keep it simple. There are, of course, taxes before and after retirement.
Assuming not 4% annual withdrawals, but 3.5% to reflect concerns over low bond interest rates, you need invested assets of $1,224,342 dedicated for retirement.
I say your planning is that simple and the best place to start. I maintain that SPENDING will not, over a period of retirement, be less than during pre-retirement. Different, but not less and by spending I don’t mean just getting by covering living expenses, I’m talking about enjoying retirement and spending accordingly no matter how long retirement lasts. And, I’m talking about the ability to deal with significant unplanned spending – high dental costs, major home repairs, car repairs, prescription costs, etc. And then there is inflation. Since I retired my spending power has dropped by 23%.
Two points of rebuttal are mentioned when I explain my position. Because a mortgage will be paid off, expenses are lower. That saving from no mortgage may be valid in terms of more disposable income if the mortgage is paid shortly before retirement, but if it was years before, spending habits have likely already adjusted accordingly.
Point two, saving stops when you retire. I say not true. There may be a decline in the amount being saved, but some ongoing saving is highly desirable.
What do you say?
If you want to know how much you need to save to generate your retirement income goal, use a future value calculator and use your own annual return assumption. Of course if you are many years from retirement, annual adjustments for inflation are necessary.