Financial Resolutions for 2006: Retirement Number

I've been reading the book "The Number" and will be reviewing it in the next week or so. One good thing it's done for me is that it's helped me realize that I need to get a specific retirement number -- an amount that I need to have saved in order to retire.

Up until now, I've been saving like a squirrel, but haven't had an exact goal. Now I need/want to get one. Hence, I'm making it a resolution.

Comments

[Duane Gran]

This is a good argument for the value of a financial planner. I work with a local firm that was able to lay out several scenarios, taking into account family planning, inflation, earning potential and saving expectations. What I realized is that there are numbers (rather than a single number) and variables at play, but either way you slice it, setting a goal gives you a way to visualize what happens when you alter the plan, such as early retirement or a different tolerance for risk in investments.

Like most things, one should trust but verify. I think for most people with more than 100k of assets in the marketplace they benefit from financial planning. It helps give definition to the number.

[Me123]

You don't need a planner eating away at your hard earned assets with an annual fee, unless your financial picture is terribly complicated or you have a complex problem. All you need is some financial sense and a spreadsheet program.

I'm 28 currently, my magic number is right around $5,000,000, assuming I want to live on $75k/year in retirement and retire at 60. Got a ways to go.

[Lord]

Perhaps you should get a financial planner then. Assets of $5M should securely provide $200K of income or $1.9M would be sufficient for $75K. Or is that $5M in inflated future dollars?

[Joe]

His number is right around where mine is. If I'm right (at least this is how I do it...) he's calculating how much he needs in absolute dollars (nominal) to live on $75,000/yr in real money ($75k in today's purchasing power) AND at the same time not draw down on his pricipal balance.

Assume inflation of 2.75% annually (1.0275^32 = 2.4) means that $5MM is worth only $2.1MM in today's dollars. At that point assume you put it into a safe mix of stocks and bonds (75/25 maybe) so you assume a 6.5% return. With a 2.75% inflation rate that lets you remove about 3.75% of your total each year to maintain your principal... that gives you right about $75M per year in real purchasing power. Fun fun.

That's at least the idea behind what I'd like to do. Wosrt case scenario you have an extra $5MM to fall back on and that's not taking into account social security since we aren't going to see a dime of it anyway. This also means you'll be leaving your entire amount to your kids.

[2million]

I have my magic number. Shh don't tell anyone what it is ;-). The challenge is getting to it as quick as I can.

[stephanie]

Leave it for your kids?!!?? I say split the difference between 1.9 and 5, you'll have about 100 because 75 won't cut it in 30 years. Pay for your kids school and weddings, maybe, just maybe a small downpayment on their first house and say good luck!

[Diane]

These are good comments. Big question none of us can answer (hence all the assumptions above) is what the spending value of a dollar will be when we retire. Work in process.