How Much Money Will I Need For Retirement?

The Golden Question that everyone seeks from their advisor is often this. While we often think about the boat we will spend our retirement on, very few people seem to know how much money they will need to live their favored lifestyle in retirement.

Generally speaking, it has been found that we can spend 4% of our investments in retirement without ever outliving the assets themselves. Surprising enough to people who aren’t actively researching financial planning (you probably consider yourself lucky), this is the biggest risk facing current retirees. Thankfully, in 2021, we can get some more detailed retirement solutions on what we can do and how to get there from our friends at eMoney, which we use to build complex and personalized plans for our clients, but just for a second, let’s over-simplify it.

 Let’s assume for a couple with $1 million in assets in retirement, we apply the 4% rule. This gives us $40,000 a year to spend in retirement, before social security, which the average benefit payment currently is around $1300 a month per person, which equals $15,600 per individual, or $31,200 per couple. Now, we know that this is exceptionally over simplified, but it does give us a good illustration of what we may need in retirement. So for the couple above, with $1 million in assets for retirement, they can currently spend $71,200 per year, and be comfortable not outliving their money.

This is probably not what you expected to read for a millionaire. While this can be overwhelming, it also emphasizes the importance of being efficient and effective in not just your investment strategy, but also in your contribution, planning and taxes.

We are often asked how much a family will need in retirement, but the simple answer is what lifestyle do you want to live? Do you want to leave your heirs anything? How about college for the grandkids? Do we want to help with that? What are the short-, medium-, and long-term goals? This allows us to reverse engineer your portfolio and build a plan to get there. As far as the boat we mentioned before, we can make that happen too. How early and often you contribute will determine the size of the boat.

-Colin Feller, President