Planning for retirement isn’t just about saving money — it’s about knowing how much you need to retire comfortably. That “how much” is often referred to as your retirement number — the amount of money you’ll need saved to maintain your lifestyle once you stop working.
But do you know what yours is?
Why Your Retirement Number Matters
Having a retirement number gives you a clear target. Without it, it’s like setting out on a road trip without a destination. Knowing your number helps you:
- Determine how much to save each year.
- Decide when you can realistically retire.
- Understand how long your savings will last.
- Make smarter investment and lifestyle choices today.
How to Calculate Your Retirement Number
There’s no one-size-fits-all formula, but here are a few key components:
1. Estimate Your Annual Retirement Expenses
- Housing (rent/mortgage, property taxes, maintenance)
- Food, utilities, transportation
- Healthcare
- Travel and leisure
- Inflation
A good starting point is to aim for 70–80% of your pre-retirement income. But if you plan to travel more or support others financially, that number may be higher.
2. Estimate How Long You’ll Need Income
Life expectancy is increasing. It’s wise to plan for 25–30 years in retirement, especially if you retire in your early to mid-60s.
3. Factor in Other Income Sources
Include Social Security, pensions, rental income, or part-time work. These reduce how much you need to withdraw from savings.
4. Apply a Withdrawal Strategy
A common rule of thumb is the 4% rule: you can withdraw 4% of your total savings in your first year of retirement, adjusting for inflation in later years. So, if you want $60,000/year from your portfolio:
60,0000.04=1.5 million dollars needed\frac{60,000}{0.04} = 1.5 \text{ million dollars needed}0.0460,000=1.5 million dollars needed
This gives you a ballpark figure, but your actual number could vary based on market conditions, inflation, healthcare needs, and your retirement goals.
How to Close the Gap
If you’re not on track, here are a few ways to close the gap:
- Increase savings: Max out your 401(k) or IRA contributions.
- Adjust your timeline: Delaying retirement even a few years can make a big difference.
- Invest wisely: Make sure your portfolio is aligned with your time horizon and risk tolerance.
- Reduce spending: Living below your means now creates more flexibility later.
You Don’t Have to Do This Alone
Determining your retirement number can be complex, but you don’t have to guess. A financial advisor can help you calculate your personal number, stress-test your plan, and guide you toward your goals with confidence.
The Bottom Line
Knowing your retirement number is one of the most empowering steps you can take for your financial future. It transforms retirement planning from a vague idea into a clear and actionable goal. The sooner you know it, the sooner you can take steps to reach it.
So, do you know your number?
Contact Mills Wealth, and we’ll partner with you to help plan and achieve your retirement goals.