Joe Anderson, CFP® and "Big Al" Clopine, CPA share strategies to help you find out how much money you will need to last through retirement, how much money needs to be saved and how much needs to be accumulated for your specific retirement plan. What's your magic number?
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So let's take a look at the first method of determining your "magic number"…
1. 8 Times Your Final Pay
Example: $100,000 Income Per Year
Magic Number: $100,000 * 8 = $800,000
Pro: This helps the person close to retirement find out how much they may need for retirement
Con: It does not factor fixed income sources (Social Security & pensions)
Con: It does not help a younger investor understand how much they need to save
2. Saving 15% of Net Salary
Annual Salary: $100K
Annual Take Home Pay: $70k
Annual Savings: $10,500 (15%)
Savings at 6% for 30 Years: $830,000
This method is good to help people start saving more money. Most Americans are not saving nearly this amount and this strategy does not help someone close to retirement see if they are on track or not.
3. 4% Distribution Rule
$100K Desired Retirement Income
$50K Fixed Income
$50K Income Shortfall
$50K Divided by 4% = $ 1,250,000
This method takes into account fixed income sources and is more scientific than other methods. The problems with the 4% rule are that it doesn't apply if you haven't saved, it is dependent on life expectancy, and depends heavily on growth rate.
FACTORS TO CONSIDER
– When Do I Want to Retire?
– How much do I spend now and how will that change in retirement?
– What variables could change everything? (Unexpected illness, the Premature death of a spouse, Divorce, Bear market, etc.)
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• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, Inc. A Registered Investment Advisor.
• Pure Financial Advisors Inc. does not offer tax or legal advice. Consult with their tax advisor or attorney regarding specific situations.
• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.
• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.