The following is an excerpt from the ebook How Much Do I Need to Retire by Todd Tresidder from Financial Mentor. I really enjoyed this book (and worked through it personally in re-calculating my retirement number), so much so that I convinced Todd to give you all a special offer on it. See the end of the post for details.
Do you want to be able to maintain your standard of living in your golden years? Do you want to know how much money you can afford to spend every month so that you don’t run out of money before you run out of time? Do you want to know how much money you must save each month to reach your retirement savings goals? If you answered “yes” to these questions then the only way you can find the answers is to calculate your number. Anything less is guessing.
For most people, calculating your number is a wake up call. It gives you a concrete goal to work toward when previously there was none. You might be vaguely thinking you need a million to be financially secure, or you might think Social Security and your company pension will suffice. But until you actually do the math and calculate your number you really have no clue. The result is vague actions toward your retirement savings because you don’t really know exactly what you need to do and by when.
However, everything changes once you calculate your number because then your retirement planning goals can be made concrete by reverse engineering your monthly savings requirements based on your age, current asset position, and expected retirement date. If your calculation shows a $250,000 shortfall with retirement in 5 years it is fairly simple to divide 5 into $250,000 and realize you need to increase savings by roughly $50,000 per year. No more guesswork. You simply take the difference between your “How much is enough” number by subtracting it from your current savings and it will tell you in no uncertain terms how much savings is required and by when.
Without a retirement number your savings and investment plans are aimless. You know growing wealth for retirement is important, but how much and by when? It is all so uncertain and vague. By calculating a savings number and an expected date for retirement all vagary ends and the serious planning can begin. In short, it is an essential step to reaching your goal of retiring with financial security and confidence.
According to the Retirement Confidence Survey published by the Employee Benefit Research Institute only 42% of workers have ever tried to determine their retirement savings needs. That’s a shame because nearly half of those who did calculate their number took actions to increase their savings by contributing more to retirement plans or changing investment strategies.
In other words, setting a goal is an effective exercise that can get you into action. It eliminates the uncertainty around what you should be doing each month and converts it into clearly defined actions you can take to secure your retirement. It converts the unknown into the known. It is an important and valuable step in retirement planning. In fact, it is essential.
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If you like what you've read so far and want a copy of the book, you can get it for 50% off (good for the first 200 buyers only). Here's how: Simply click on the “download now” button from the how much money do I need to retire page In the popup shopping cart lightbox is a “discount code” box. Just type in “FreeMoney” in the box. Then to the right is a button to “update cart”. When you click on that button the code will be applied, and you will see the discount and can proceed to checkout as normal. This code is good for the five days following the posting of this piece. And no, I don't get anything from this offer -- just making it available to you since I liked the book and thought you might as well.
You're right, calculating out how much money you need to be saving to hit your retirement goals is a wake up call!
I know that I'm 25 - have my whole life ahead of me - and yet I feel pressed to get started on retirement right away! If I don't start now, I might wake up at 45 and wonder why I didn't start 20 years ago.
Thanks for the reminder to plan our financial lives - even when it comes to goals we have to hit many years down the road.
Posted by: ChristianPF | March 21, 2012 at 05:21 PM
It's important to gauge if you are saving way too much for your retirement. You might be sacrificing other life goals.
Posted by: SB | March 21, 2012 at 08:21 PM
Here's my comment about the previous post.
I live in Silicon Valley, home to a few trillionaires, quite a few billionaires and thousands of milionaires. Every day after watching a NETFLIX movie we drive to the post office about 1/2 mile away to drop it in the box. We pass by a bus stop and there are always a group of dishevelled, dirty and unhappy looking homeless people of both sexes sitting in a doorway with their many shopping buggies piled high with their life's possessions waiting for a bus to take them to wherever they spend the night.
My question is: Should you sacrifice some pleasures today in order to accumulate money for a future that is unknown or should you just live for the present?
For me, saving money is all about increasing my future security and capability to survive what ever misfortunes life sends my way. That saving started with my very first paycheck and continues to this day at the age of 77.
Posted by: Old Limey | March 22, 2012 at 12:53 PM
>the only way you can find the answers is to calculate >your number. Anything less is guessing.
Actually, you really need to re-calculate it every few years- as there is a LOT of uncertainty in that number. You need to predict inflation, health care costs, your investment returns, etc. If you make one calculation 30 years before retirement it won't be correct- it can get you started on a reasonable path- but you should expect at least some of your predictions to be wrong... I know mine were.
-Rick Francis
Posted by: Rick Francis | March 22, 2012 at 05:08 PM
Why not just live frugally, save and invest as much and as well as you can, and trust God to provide?
Posted by: Terry | March 22, 2012 at 09:09 PM
Terry:
There's a saying that goes, "God helps those that help themselves", and I believe it.
Posted by: Old Limey | March 23, 2012 at 11:16 AM
@Old Limey
"I live in Silicon Valley, home to a few trillionaires, quite a few billionaires and thousands of milionaires"
Can you name one Trillionaire. I think you are either exagerating or you are mistaken. Carlos Slim is the richest person in the world and his net worth is around $60B-$70B.
Posted by: Tony | March 23, 2012 at 02:19 PM
@Terry - because you don't want to die with regrets.
When my mother was dying and was a little delirious one phrase she said was "all this money" - and I still don't know what she meant. She wasn't rich, but she and my father lived very modestly and they saved enough for modest retirement. Probably not enough for my retirement, but enough for theirs. All of the money they saved were still there, and for some reason I think she meant that all the money she saved didn't help her at the end. I think in hindsight she could've enjoyed life just a little bit more, maybe took an extra trip or something.
You want to save for retirement, but you also don't want to die without having enjoyed the money you saved a little. There should be a balance. You don't know how many good years you are going to have. Think of it as diversifying - saving enough so that if you live long you don't end up broke but also not too much so that if tomorrow you find out you have a disease you have lived.
Posted by: kitty | March 25, 2012 at 06:40 PM
I completely agree the sooner you set a retirement saving goal the greater the probability you will meet your retirement needs. You can never start too early. The longer you have until retirement the less you will need to save and the more aggressive you can be with the money you have saved.
Posted by: Kelli-Saving Money | April 03, 2012 at 01:53 PM