Determine Your Retirement Needs

Posted by: Sophie H. | Dec 30,2007


I love the Internet.  I’m getting on in years but I already cannot imagine how I got along without the Internet.  You mean I had to go to the library to research different topics?  I had to go to the periodicals desk, pour through magazines and newspapers, then make photocopies?  It seems so barbaric.  The Internet’s like having a library on your desktop.  

An example is this great piece about how to determine your retirement needs in three steps.  It’s one of the better summations I’ve seen online.   The basic formula is this: determine how much you need to live reasonably comfortable today, then factor in inflation (2% a year), and finally multiply that number by 25.  25 is a huge multiplication, but shows just how much you need to retire outright.

I say “retire outright” because there is one thing that many prospective retirees don’t take into account.  While they may stop working, they may not stop investing.  This above formula is to determine how much money you’ll need the day you retire if you never work again.  Investment can be considered a type of work and you may continue investing deep into retirement, if not until the very end. 

In addition, your investments might outperform the inflation interest rate.  This depends on the type of investment, but usually the interest rate on a high-yield savings account can help offset what you lose to inflation.  However, this amount can also be drained by interest lost on consumer debt so you might just break even – putting you where you were when you started this formula.  For that reason, it’s a pretty good guideline for what you’ll need to save.  It’ll likely be such a large figure that it will light that proverbial fire to get you more aggressive about saving for retirement.  

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