How Much Money Do I Need to Retire?

News Flash! and Yahoo! Finance published my retirement interview today, Early Savings Pay Off Later in Retirement

There’s a lot of talk about saving for retirement and how much money you will need. To help with this dilemma, there are calculators, books, and articles galore. The simple answer to “How Much Money Do I Need to Retire?” is, you need a lot of money if you anticipate living large in retirement and not so much if you’re going to get a camper, and park it on a beach in Mexico.

For many in their 40’s, 50’s, and 60’s, there’s the fear that “I haven’t saved enough.” That fear hits when you read an article about retirement, or experience job uncertainty, or retirement planning is mentioned on the news. The automatic reaction for many is to change the channel, turn the page, or divert oneself from the topic.

save for retirement


I was speaking with some older friends recently who divulged that they are panicked about retirement. Devon, the husband just lost his job at age 65. They live in Manhattan and want to remain in New York City, yet they can’t afford to retire right now. They do not want to move and Devon is job hunting. Their solution regarding retirement planning is to avoid talking or thinking about it.

Avoiding Retirement Planning Will Not Make it Go Away

Fight the urge to avoid and create an action plan.

How do you go about figuring out that one perfect number to shoot for? First off, since the future is unknowable, there is no perfect number. My dad got very sick and moved to a nursing home. No one predicted that the strong, independent, self reliant guy would need this type of help! Dad rarely missed a day of exercise or healthy eating. Fortunately, he and my mom saved and invested from the beginning and thus have the funds for his care.

How much to save for retirement depends on many factors. Todd Tressider, financial coach and author of How Much Money do I Need to Retire mentions 7 questions to answer when considering how to save for retirement. The response to every question is a guess; but the questions get you thinking and planning for retirement.

Write out your answers to these retirement questions:

1. What amount of money will you spend every year from the day you retire until the day you die?
2. What will be the inflation rate during your retirement years?
3. What year will both you and your spouse die?
4. How much money will your company pensions and Social Security pay over the duration of your retirement?
5. What will be the growth rate of your investments over your remaining lifetime?
6. What will be the sequence of those investment returns? Will you have good years in the beginning followed by bad years or vice versa?
7. What age will you and your spouse retire— regardless of whether it is voluntary, due to unexpected sickness, or due to forced layoffs out of your control?

“Not to be a pessimist, but can you see why this is not the exact science that the books, calculators, and financial planners have led you to believe? Hidden behind the scientific façade of computers and mathematics are some very big assumptions. None of these questions can be answered with certainty, yet all of them must have accurate answers or your estimate for how much money you need to retire will be wrong.” Todd Tresidder

How to Plan for Retirement

Think about expenses which will be reduced, such as gas and dry cleaning. And counter-balance those with costs that may increase, like healthcare. Map out several scenarios.

After you ballpark some estimates for future retirement expenses, use a retirement calculator to get a dollar amount. I used this retirement calculator to project my future retirement number. I put in a few scenarios in order to test out various alternatives. It gave me an idea of both best and worst case financial outcomes.

Accept the fact that there’s anxiety in this type of planning. The worst alternative is to do nothing. I know far too many people who avoided planning and are filled with regret and stress. Saving more now is better than doing nothing.

My recommendation is to save as much as possible starting now. Since retiring in a recession or boom time can impact your long term retirement wealth as can inflation or unplanned health expenses, it’s a good idea to set a financial target and work towards that figure.

Waiting, avoiding, and overspending will lower your long term wealth and increase your stress. Once you look at the projections, you’re on your way to taking control of your future.


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  1. Sean @ One Smart Dollar
    October 15, 2012 | 8:56 am

    It is never to early to start thinking about retirement. I opened my retirement account pretty soon after I got the first paycheck from my first job out of college.

  2. Little House
    October 15, 2012 | 9:29 am

    I’m still behind on my retirement goals, but at least I’ve started something. My plan for 2013 (once I secure a full-time teaching job) is to shove a large portion of my pay increase into retirement. I’m realistic and realize I will probably have to work until I’m 70 or 72 – as long as my health stays in-tact!

  3. Jackie
    October 15, 2012 | 9:36 am

    I agree that the worst alternative is to do nothing. Yes, it’s true that none of us will really know for certain what we’ll need in retirement until we’re experiencing it (and some of us will experience it for many, many years.) But we all know we’re likely to need SOMETHING.

  4. cashflowmantra
    October 15, 2012 | 11:38 am

    Rather than worry about how much is needed for retirement, the thinking should be: How will I pay my bills? Savings won’t cut it. You need to have some income streams.

  5. Lance@MoneyLife&More
    October 15, 2012 | 11:54 am

    I started saving a decent chunk in my first post college job. I don’t have the details hammered out yet but at least I am saving!

  6. John S @ Frugal Rules
    October 15, 2012 | 12:37 pm

    I completely agree that the worst thing to do is to just do nothing. Let that fear that you’ve not saved enough drive you to start working at it and throwing all you can at retirement.

  7. Barbara Friedberg
    October 15, 2012 | 12:45 pm

    @Sean, John, Jackie, and Lance, starting early-You are great models. You don’t need to have the details worked out, but putting the caash away and investing it for the long haul is the path to grow your wealth!
    @Little House-Good attitude, progress toward your goal is what’s important. Your money will grow and compound ove the long term as you add to it.
    @Cash Flow, thanks for bringing up the concept of creating income streams. Reduces the pressure to have a boatload of cash.

  8. Jennifer Lynn @ Broke-Ass Mommy
    October 15, 2012 | 1:02 pm

    HAH! I love that photo of the man burying his head in the sand. Sadly it reminds me of older relatives who are thinking about their retirement quandary now, well into their 50′s.

    I am in my early thirties and squirreling away as much as possible, while I still have the energy to do so!

  9. Todd Tresidder
    October 15, 2012 | 1:13 pm

    Thank you for mentioning my book. Much appreciated! Cash flow was right in mentioning income streams, and it is not mutually exclusive. Assets are only valuable as they translate to spendable cash flow, and cash flow translates as a multiple to an asset. It is not either/or: it is both. A good rough guideline is every 1,000 per month roughly equates to about 300,000 in assets. This is true whether it is 1,000 increase in monthly cash flow or 1000 reduction in monthly spending. The math is all the same. Hope that helps.

  10. krantcents
    October 15, 2012 | 3:08 pm

    For some, thinking about retirement or retirement planning is like funeral plans. You put it off until you cannot any longer. The difference is waiting makes it more difficult or nearly impossible.

  11. Barb
    October 15, 2012 | 4:28 pm

    @Jennifer, Don’t get me started about some older folks I know. I wish I could shove my advice down their throats (too harsh?) :)
    @Todd, I like the cash flow to assets translation, interesting. Where did you come up with that, is the the potential return you would have earned on $300,000?
    @Krantc. GReat analogy!

  12. Holly@ClubThrifty
    October 15, 2012 | 4:41 pm

    I think about this all the time and it stresses me out because we are so far from retirement. We are only 32 and 33 and have decades to save for retirement. We are big savers and are actively saving but I have trouble figuring out the amount we should be shooting for.

    Tons could happen over the next 20 years. What will things cost? What will our health be like? There are so many unknowns!

  13. Brent Pittman
    October 15, 2012 | 6:18 pm

    Many don’t save for retirement because they are living paycheck to paycheck and have no idea where their money goes. I agree getting to the point of saving for retirement is a high priority, yet paying off debt and controlling cash flow free up the money needed for save for ‘retirement’.

  14. Barbara Friedberg
    October 15, 2012 | 7:44 pm

    @Holly, I completely understand your worries. My recommendation is to keep on saving and investing in diversified index fund portfolios and accept that no one knows the future. As long as you are starting young, that gives your money a long time to grow.
    @Brent-thanks for bringing up those issues as well. Paying off consumer debt should be the number one priority as those interest rates are eating through your cash.

  15. Roger Wohlner
    October 16, 2012 | 8:22 am

    Great post. You made many great points, but I think that your question #6 is a critical point that is often overlooked. Ask anyone who had just retired in say mid 2007. People are often fixated on average return, but a major loss early in retirement can really derail your plans.

  16. AverageJoe
    October 16, 2012 | 10:36 am

    Congrats on the huge mentions! The funny part of this: your points are straightforward and will give you a good answer when you ask “what do I need to do?” Why would people use rules of thumb when they can just do it the right way like you’ve outlined above? It really isn’t difficult.

  17. RichUncle EL
    October 16, 2012 | 10:48 am

    I agree it takes planning and dedication to get on the right path. Also time is a critical element to get you the results you need to be financially free.

  18. Barb
    October 16, 2012 | 4:20 pm

    @Roger, That’s why it’s so important to have a certain percent of your retirement assets in cash, I bonds, or TIPS.
    @Joe, Thanks for the props. It’s tougher, but not impossible to save for retirement with a later start.
    @Rich-As I mentioned to Joe, more time is certainly better to let the magic of compounding work.

  19. Marie at FamilyMoneyValues
    October 16, 2012 | 8:27 pm

    I did two years of calculating before finally pulling the trigger on retiring.

  20. Barb
    October 17, 2012 | 12:16 am

    Hi Marie, I can imagine how much thinking and planning that type of decision requires. Are you enjoying your retirement?

  21. Miss T @ Prairie Eco-Thrifter
    October 17, 2012 | 8:44 am

    My hubby and I have been saving for retirement since we have been able to. Having pensions at work helps with this but we do have our own retirement accounts on top of this. I think putting a scheduled deposit into place that you never see really helps. Out of sight, out of mind.

  22. Barb
    October 17, 2012 | 12:10 pm

    @Miss T-By far, automated investing is the most certain method to prioritize retirement saving.

  23. maria@moneyprinciple
    October 17, 2012 | 2:56 pm

    I really like the idea of writing different scenarios – I use scenarios in my work and find these very powerful tools. I am a bit puzzled about the seven questions, though – how do I answer questions like what will be the inflation or what year am I going to die in?

  24. Barb
    October 17, 2012 | 3:04 pm

    @Maria, Your question highlights the imperfect nature of retirement planning. It is based upon uncertain expectation. I personally fall back to historical data and assume inflation will be 3%.

  25. Colorado Rockies Barry
    October 18, 2012 | 6:15 pm

    I am in my mid 40′s and I started saving for retirement after I earned my second college degree. The world has changed and it is important for everyone to prepare for retirement. Remember, time waits for no one.

  26. Barbara Friedberg
    October 18, 2012 | 7:26 pm

    @Colorado, Thanks for the encouragement to all!!!!

  27. […] you’re projected to spend in retirement is too significant to ignore. Therefore, the sooner you start saving for your retirement, the more comfortable you’ll be during your golden […]

  28. […] and ease of payment led us to? Some are in debt; others suffer from anemic bank accounts and retirement savings. Perhaps even more detrimental to our lives than these two issues is the amount of time and energy […]

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