How Much Do I Need To Retire?

How Much Do I Need To RetireNOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. Please consult with your financial advisor before taking any action. For planning advice contact Polaris Financial Planning.

How Much Do I Need To Retire?

As long as we have had the idea of retirement there have been people asking how much they need to have saved!  My goal is to create and “Everlasting Nest Egg”.  The goal is to NEVER run out of money.  I want the money to last past the age of 99.  Odds are high that I will never live that long and if I do I probably won’t care.

The answer can be complicated and will depend on several factors.  Do you have a pension?  Will you get social security?  Where will you live?  etc….

Every person is different and it depends on what you want.  Many financial web sites suggest that you will need 75 – 90% or your current income in retirement.  I like to start with the goal of 100%!  There are costs that may go away (less driving to work, eating lunch at home) but there are costs that may go up (medical bills, travel).  If you really only need 85% and you have 100% even better!

Of course, the more money you want per year the larger your portfolio will need to be.  Most advisors suggest that you can take out between 4 – 6% per year.  For most people 6% will be OK but you have to have your portfolio set up correctly.  So if you need $60,000 per year you should have a portfolio of $1 Million.  Let us look at two different theoretical people Jack and Jill!  If you would like to see how it works out for your contact me at and we can figure it out!

Jack….

We always have to make some assumptions:

Current Age 50

Portfolio today   $350,000

Growth rate of account 9%

Retirement age   62

Value of portfolio at retirement $984,397

Funds needed from account (at retirement)   $88,397

% of funds removed per year    ~ 9%

Age when Jack goes broke    78

His nest egg graph will look like this….

Nest Egg Jack

As you can see, Jacks funds don’t last very long.  If there is a drop in the stock market he could go broke much sooner.  This is what you DO NOT want.

Jill ….

We always have to make some assumptions:

Current Age 50

Portfolio today   $350,000

Growth rate of account 10% (she did better by keeping here expenses really low)

Retirement age   63 (Jill worked 1 extra year)

Value of portfolio at retirement $1,208,295 (wow that 1 extra % and one extra year made a big difference)

Funds needed from account (at retirement)   $83,706 (She spends less money)

% of funds removed per year    ~ 7%

Age when Jill goes broke    101!

Her nest egg graph will look like this….

Nest Egg Jill

Jill will have money until the age of 101!  Jill’s investments made just 1% more per year and she worked 1 year longer.  She also took out about $5,000 less per year in retirement than Jack did.  For added security I would normally suggest that she works one more year or works part time for a couple of years.  My goal is to get the withdrawal rate down to 6%.

Polaris Everlasting NesteggIf you can get the rate below 6% there is a good chance you will NEVER go broke.  The goal is creating that Everlasting Nest Egg!

Feel free to contact me if you would like to see how you are doing.

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