What's Your Retirement Number?

I have been reading the awesome book How Much Money Do I Need to Retire? (60 Minute Financial Solutions) recently and will be sharing more from it with you over the next week or so. But for today I'd like to address an issue presented early on in the book: the need to set a specific retirement number.

This summer I asked if you had calculated your retirement number (and said I had), but we never got to specifics. So the question for today is: What is your retirement number?

Mine is $3 million. I won't go into details in this post as to why it's at that level; I'll save that for another date. For now, that's my simple answer. If I get to $3 million in net worth, I will have hit my retirement number.

How about you? What's your retirement number?

Comments

[Super Saver]

Mine was having liquid assets (not including our house) at 20 times my gross salary, i.e. before taxes and other deductions. I retired in 2007 at 49 with 23X in savings. Unfortunately, the Great Recession and paying off our mortgage has reduced the amount. Our retirement savings ratio had fallen as low as 13X in 2009 and currently is at 17X.

So far, I have been able to stay retired, although I have done some part time work in 2008-2011 to reduce the withdrawal rate from savings (and to try other professions in which I had an interest).

[Lance @ Money Life and More]

I'm ashamed to admit I haven't calculated on yet. Your number gives you $90k a year at 3% withdrawl and $120k at 4% withdrawl... not bad. Especially since you'll have rental properties too. Are you including those in your $3 million?

[Gavin]

Mine is over 2 million, my wife wants 3 (liquid assets as SS mentions). If you remove our mortgage and student loan debt from the equation, we live with comfort on 40K /yr or less... so I believe our spending is low enough that 2+ million would be more than enough (with whatever inflation puts us at at that point). We don't have kids or are planning to have kids, but we do love to travel and plan to keep doing so through our retirement. My goal for right now: I'm 32, and want to have a net worth of 1 million by the time we're 40 (including paid off house). I figure if I hit that, I'm well on my way to to 2.5 - 3 million by the time we retire.

[TL]

Our current plan is to retire in 13 years. To do this we need to have about $3.8MM.

How we calculate: To calculate our required income, we take our 5 year average spending level (no tax) and multiply by 1.3 to adjust for estimated taxes. We use spending instead of our actual income because we save roughly 50%. The required income is then adjusted for 4% inflation (conservative) for 13 years and we end up with a required annual income of a little over $145,000 in 2025.

The size of our portfolio depends on the rule-of-thumb we follow. If you do the 4% per year withdraw rate then we need $3.6MM (25x income). If you use the factor found in a table in IRS publication 590 for required minimum distribution and our ages then we need $4.6MM (32x income). I saw an article from Hewitt that said you need 15.7x your desired income which comes out to $2.3MM. Averaging the three, you get $3.5MM wo we're targeting a little more at $3.8MM.

To be conservative, we don't include our small pensions or social security and treat them as gravy.

[Old Limey]

We retired in September 1992 when I was 58 and my wife was 59. Our investment portfolio at that time was 4x our income of $80K, or $320K. The reason we felt comfortable was that we were debt free, owned our home, as well as a condo at clifftop level overlooking a beautiful beach, and we both had nice pensions and would be taking SS at age 62.

It's hard to believe (even for us) but twenty years later our gross income has grown to $387K and our investment portfolio has grown to almost $7M. Also $160K of our income is tax free from muni bonds and another $160K tax sheltered in our IRAs.

To what do we owe our success?

1) The Clinton years and the emergence of the Internet and the resulting Hi-Tech Bubble.

2) Changing my day job from Aerospace engineer to learning how to become a very skilled, active investor.

[Gregory Lenz]

I really believe reverse mortgages are going to become part of everyone's retirement plan. Now, the HECM Line of Credit will probably be the most popular option since you don't have to take any funds unless you need them. Also your amount of available funds grow at whatever your interest rate + 1.25%.

[Old Limey]

I just took a look at the chart of the last 20 years comparing my investment results with those of a Buy & Hold passive investor using the fund VFINX which is Vanguard's S&P500 fund with all dividends reinvested.

My APR was 16.88%, VFINX was 7.85%.
However when you consider the results of 20 years of compounding it means that my portfolio increased by a factor of 6.1 over that of a good passive investment. In other words, the passive investor's portfolio would be about $1M compared with my almost $7M.

The next thing to consider in light of the current state of the US economy and employment situation is "What chance is there of the next 20 years being as lucrative as the last 20 years?" It's my opinion that, other than starting a successful business, there are two main options available, which are:

1) Learn how to become a savvy real estate income investor.
or
2) Learn how to become a savvy, active, mutual fund investor.

The idea of having a pot of money available at retirement and then burning through it and hoping that it lasts until you die is rather risky.

[NoTrustFund]

This is something i've been working on lately so I'm looking forward to more info on your number.

Right now our number is right around $3 million. I got this number by taking 25*annual spending (allows us a 4% withdrawal rate) + college savings need for our kids + paying off our house. Annual spending includes extra money for house repairs and car replacement fund. And since we are so far from retirement I tried to be fairly generous with all these numbers.

We're so far from retirement that this is the best I could come up with for now. With two young kids there are a lot of thins that could change but I wanted to at least have a ballpark number.

When I really think hard about this number, I sometimes think our number needs to be higher to account for uncertainties surrounding healthcare.

[FMF]

Lance --

Yes, the investment properties are included in my $3 million.

[FMF]

TL --

That's very close to the process I went through in setting up my number.

[Concojones]

I'm shooting for $1M, but less would work too. If I ever buy a house, its value would be included in the $1M.

[Concojones]

That's in today's dollars, and for a family.

[DPF]

I think that the true necessary retirement number for most people is much higher than they are prepared for, or want to confront. Very unfortunate, but reality.

This being said, I'm thinking that this number for me is in that range too, but of course we need to consider lifespan and time value of money.

[BD]

I can't ever retire. Can't afford to.

[Leigh]

My number, as a single person, would be about $1 million. I don't know if I'll have kids, so I'm shooting for that now. That includes paying off my condo and then living off of 4% of my investments per year. I think that it is do-able within 10 years from now, in my mid-30s.

Of course, if I get married and/or have kids, that number could change and the timeframe could grow or shrink. I still need something to shoot for now though!

[Funny about Money]

Mine was $1 million. I was close to that and expected to exceed it with my plan to work until age 70.

Then the market crashed, I lost a third of my retirement savings, and I was laid off at an age when I couldn't (and still can't) get another full-time job. Now it's $560,000.

Targets are nice. Reality isn't.

[Robert Jacobs]

Based on our current expenses, with 4% annual inflation, and withdrawing 4-5% of our nest egg every year, our number is 4 million. This is assuming an 8% annual return.

[Money Beagle]

$3m is my personal number as well. I'm waaaaay far away from that though so it tells me I've got many years of working, contributing, and saving to do :)

[Mike Hunt]

I think my "number" is based on an age now vs just a particular amount...

I'd much rather prefer a ratio of 3:1 in terms of passive income to annual expenses.

-Mike

[[email protected]]

My motto has always been: reach for the moon, even if you miss, you will land among the stars. My goal is $10 million, and even if I don't get there and hit $3M or $5M, I think I'd be satisfied.