Becoming Dynamic: Retirement Planning Find Your Number

Becoming Dynamic: Retirement Planning Find Your Number

Mar 20, 2019 10:34:46 AM

We just celebrated St Patrick's Day, and I wanted to talk about the "Gold at the end of the Rainbow" Retirement.Mountains with a rainbow cast over them

Have you ever heard someone talk about having their "number" for retirement?

I loved this old ING commercial that showed people literally carrying around their "Number!"

Two man standing by an elevator, both holding retirement numbers

The idea is that if you can figure out what your top number is, you can save for that and everything should be okay. Hopefully…

Let's say you live on $4k per month today.

Here's how the math could work. Advisors typically estimate that you can pull about 4% of your portfolio per year to live on. So, you'll need to have about $1.25 M saved up when you want to retire.

You're good!

WAIT…What? How did that work? If you re-read the previous sentences a few times trying to figure it out, that’s okay, I was trying to make it seem simple while glossing over the details. Again, what a lot of financial experts tend to do…

I wanted to pull back the curtains and show you how some of this stuff works!

  1. FV = Future Value How much do you live on today?

If it's $2k per month, $4k, $10k, whatever the number is, don't lowball yourself for retirement. If you make $50,000 per year salary, use that number. Some companies have a sales tactic of saying you'll need only about 80% of what you lived on during your working years. They assume that things like mortgages will be paid off and kids will move out.

Here's the deal. If an agent is selling you a product, and he or she can make it seem like your goal is attainable, then maybe you'll buy. I am brutally honest. I'm candid, and have conversations about working longer, or saying that if you stay on your current path you will have no choice but to retire on 80% or less.

Most Americans don't have enough during retirement.

So why would we follow the 80% rule like everyone else?

Also, I do everything pre-tax. Because that’s how everything comes when we are reporting our salary.

Ok. Math time!

$50,000/ .04 = $1,250,000 So you'll want to shoot for about $1,250,000 in retirement savings when you want to retire!


If you check out my video you can see that I use a financial calculator to do some of the math. If you don't have one, you can find some for free online or in the app stores!

We just did step 1, input 1,250,000 as your FV.

2. N = Number of years. How many years from now until you want to retire?

Suppose you're 25 and want to retire at 65. That would be 40 years from today. Input 40, for N. Adjust for whatever age you want to retire, minus your current age.

3. I/YR = Interest Rate Per Year. Average rate of return on the investment.

The US stock market has averaged about 10% rate of return with all of the huge years and all of the negative years. A fair number to use minus inflation and any other variables would be about 7%. Other advisors may debate that, so if you want to play with the interest rates, be my guest.

4. PV = Present Value. How much do I have saved now?

If you don't have anything saved right now, you can put $0. That’s it! If you have $10k, $25k, $1M saved, use that number. We're going to use $0.

5. PMT = Payment

This is the rub! We're solving to figure out how much we need to save per year to get to our $1.25M.

In our example it turns out to be a negative number. That’s right! Because of the cash-flow you have to put in $5,851.80 per year for 40 years. That is about 12% of your pre-tax income.

About $487.65 per month.

So there you have it! We now have a realistic number for your pot of gold at the end of the rainbow, and a realistic way to get there. If the 12% (in this example) is too much. Start with 5%. Move to 7% next year, and keep moving up until you can catch up.

Maybe it will have to get to 17.23432% for 32 years because you have to grow to that over the next 8 years. At least you know, and now you can chase those lucky charms!

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