How Much Money Do You Need to Retire?

The key to retirement security isn't a “magic number” like $1 million or $2 million—it's figuring out the size investment portfolio you need to support the life you want.

A Three-Step Formula to Determine Your Retirement Number

STEP 1: Define Your Vision (The Spending Target)

Many people say you will need to spend about 80% of your pre-retirement income in retirement.  That might work for some, but there is no one-size-fits-all rule.  Your number might be completely different.

Start here: What lifestyle do you want and what do you truly want or need to spend to achieve the retirement lifestyle you desire?

• Low-Cost:  Simple living, fixed expenses covered, minimal travel, or moving to a low cost-of-living place like Thailand, Philippines, Malaysia, Ecuador, Panama.

• Comfortable:  Steady travel, hobbies, no budgeting stress.

• Luxury:  World travel, maintaining two homes, aggressive spending goals.

Your desired annual spending is your starting point.

Recommendation:  Create a retirement budget from the bottom up, using what you currently spend as a starting point and make adjustments for things like eliminating your mortgage payment, kids leaving home, eliminating retirement savings, increased travel, increased spending on hobbies, increased healthcare expenses, etc.

STEP 2:  Calculate The Gap

Deduct all the guaranteed income that you will receive automatically such as Social Security, Pensions, Annuities.

👉 Retirement Spending (Step 1) - Guaranteed Income = The Gap

The Gap is the amount your investments must cover every single year.

Example: You plan to spend $90,000/year. Your guaranteed income is $40,000/year.

👉 $90,000 - $40,000 = $50,000 Gap

STEP 3:  Calculate Your Savings Goal

Multiply the Gap by a factor based on your risk tolerance and time horizon to calculate your savings goal. This is based on the 4% Rule (where 25 is the inverse of 4%) but adjusted for how long you expect to be retired and how much tolerance you have for risk during retirement.

Multiplier	Required Savings	Best For...
25x	$1.25 Million ($50K x 25)	A typical 30-year retirement (the standard safety baseline).
33x	$1.65 Million ($50K x 33)	Early retirement (longer time horizon) or a desire for very high safety.
20x	$1.0 Million ($50K x 20)	Later retirement, flexible spending, or a plan to work part-time in retirement. Highest risk unless short retirement timeline.

Critical Bonus Tips (Don't Miss These!)

• INFLATION:  You must assume your spending will rise by 3%-4% every year. Your portfolio must generate growth to offset this.

• HEALTHCARE:  These costs are almost always underestimated. Factor in dedicated funds for rising premiums and potential long-term care.  If you plan to live in the U.S., healthcare costs are projected to grow about 5-7% per year over the next 10 years.

THE BOTTOM LINE

Retirement planning isn't about chasing a magic number. It's about designing a resilient plan where your guaranteed income plus portfolio withdrawals keep pace with your desired lifestyle.  Minimizing taxes is also important - see my blog post on asset location for helpful tips ("Reduce Taxes Through Proper Asset Location")

Ready to find your retirement number and build a plan to hit it? Would you like help stress-testing your retirement plan?  Contact me or visit www.flourishingpathfinancial.com/book-online to book a free Discovery Session and get started!

Author:  John Macy, MBA, RICP®

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