What is YOUR Number?

In Asset Allocation, Cash Flow and Budgeting, General Financial Planning, Retirement Planning by Chip Hymiller

We are often asked the question, “How much money do I need to retire?”  While it is impossible to answer this question definitively as every situation varies, we do maintain mental benchmarks that are based on a number academic studies as well as our overall experience conducting Retirement Feasibility Analyses for clients. 

Assumptions

In order to derive the numbers in the table below we make a number of assumptions that may dramatically impact the “targeted” portfolio values listed including the following:

  • We have assumed that a 5% portfolio distribution rate is sustainable throughout a retirement period.  That means that if the portfolio declines due to poor investment performance, then annual distributions should be adjusted accordingly.
  • We assume a 4% inflation rate on living expenses in the pre-retirement years.  However, during retirement, distributions should be limited only to 5% of the portfolio value.  Thus, inflation adjustments are totally dependent upon investment performance.

Observations:

  • Living expenses during retirement have a major impact on the size of portfolio required.
  • Efficiently managing the tax implications when taking portfolio withdrawals is critical during retirement (i.e. should distributions come from a Roth IRA, 401(k) or a personal brokerage account?).
  • During the pre-retirement accumulation period, it is important to consider your retirement savings strategy in the context of your current, and anticipated future, tax situation.

Major expenses including possible long term care costs are not included in this analysis.

 

After-TaxLiving Expenses(in today’s dollars)

Number of Years Until Retirement Begins

5 Years

10 Years

15 Years

20 Years

25 Years

$50,000 61,000 74,000 90,000 110,000 133,000
$75,000 91,000 111,000 135,000 164,000 200,000
$100,000 122,000 148,000 180,000 220,000 266,000

 

“Targeted” Portfolio Value Required When Retirement Begins

After Tax Living Expenses to Replace

When Retirement Begins In:

$50,000/year

$75,000/year

$100,000/year

5 years

$1,220,000

$1,820,000

$2,440,000

10 years

$1,480,000

$2,200,000

$2,960,000

15 years

$1,800,000

$2,700,000

$3,600,000

20 years

$2,200,000

$3,280,000

$4,400,000

25 years

$2,660,000

$4,000,000

$5,320,000