It’s the Million Dollar Question: How Much Money Do I Need to Retire?

Pinnacle Personnel Services, LLC  |  Debbie Hatch


How much money do you need to retire?  


It’s a common question.  One every financial planner hears on a daily basis.  One that comes up in every seminar I teach.  One people worry about.  The problem is, there’s no standard answer.  The beauty is, there’s no standard answer.


There are numerous theories, and opinions.

One common rule of thumb in developing a retirement savings strategy is that your accumulated savings and other sources of income will need to replace about 70-80% of your pre-retirement income.  This assumes that retirees may be able to maintain their standard of living with less income because taxes could be lower, there is no need for retirement salary deferrals, mortgages may be paid, and there would no longer be work-related expenses such as commuting and business clothing.  Another approach is to think in terms of saving a multiple of your final pre-retirement salary.  Several analyses that factor in inflation and post-retirement medical costs suggest that employees should accumulate assets equal to 11 times their final salaries to meet retirement needs.


Like so many other things: there is no one size fits all answer.


The amount you need to save for retirement will depend on your variables such as lifestyle, post-retirement medical expenses, the length of your retirement and supplementary sources of income.  The key is to develop a solid strategy and maintain a steady pace toward your savings goal.


It depends on what YOU want your retirement to look like.  


Don’t fall for the, “70-80% of your current income” standard.  We’re individuals.  We’re different.

Dan Ariely (my very favorite behavioral economist) and Aline Holzwarth did some research on this topic.  Here’s an excerpt from his Wall Street Journal article (September 3, 2018) about it.


“To understand better how people grapple with this question, we invited hundreds of people – of different age groups, income levels, and professions – to our research lab and asked them how much of their salary they thought they would need in retirement.


The answer most people gave was about 70%. Did you also choose a percentage around 70%-80%? You’re not alone. In fact, we, too, thought that 70% sounded reasonable. But reasonable isn’t the same as right.  So we asked the research participants how they arrived at this number. We discovered that it wasn’t because they had truly analyzed it. It was because they recalled hearing it at some point – and they simply regurgitated it on demand.

The 70%, in other words, is the conventional wisdom. And it’s wrong.”



The problem is we don’t typically put together any retirement plan at all.  We act as though one day it will just…happen.  In fact, we spend more time planning our family vacation than we do planning retirement.  Let that sink in for just a moment.


You don’t need to have all of the answers today but

you do need to start formalizing a plan. 


The person who has paid off their mortgage and will be content staying around home will need less money than the person still paying a mortgage, wanting a new car every two years, putting kids through college, and desiring frequent travel.


Schedule a few hours to get started.  Shut off all of the distractions.  Sit with the person you plan to spend the rest of your life with, if you’re in a partnership.  Get out some blank paper.


What do you WANT retirement to look like? 

This should not be some grandiose dream sheet. Be realistic.


Would you like to get back to a hobby you used to do but haven’t had time for while you’re working?  Would you like to learn something new?  Maybe pick up a new hobby?  Would you like to travel?  To where?  How often?  Would you like to move?  Will you buy or rent? Do you want to take walks in the park or join a gym? Drink water at dinner or expensive wine? Watch TV or attend the ballet weekly? Visit family once a year, twice a year, or four times a year? Do you want to eat out once, twice, or five times a week? Will you be caring for someone else?


When Ariely and Halzwarth brought in another group of research participants and asked them specific questions about how they wanted to spend their time in retirement, they found it would take approximately 130% of their current income to support the lifestyle they imagined.


What stage of life are you currently in?


Yihaies Makonnen, a friend and registered financial representative, says we have three distinct phases of life:  our go-go years, slow-go years, and no-go years. We spend more money in those go-go years, and less in the no-go ones.  James Walsh, Certified Financial Planner and Liaison Specialist at Federal Retirement Thrift Investment Board talked about this too, in a seminar I attended late last month.  It must be something they learn in financial planner school.

I like Jim’s explanation.


“In your go-go years, the phone is ringing constantly.  Yup, you’ll do this. Yup, you’ll do that.  You’re on the go from one thing to another.  In your slow-go years, the phone is ringing but it’s across the room and you don’t feel like getting up to answer it.  Yup, you’ll do that, but not today.  In the no-go years, if you want to see me, you’re going to have to come over.  I don’t feel like answering the phone and am definitely not going out.”


What do you NEED in retirement?  


Will you be paying rent or a mortgage?  How much are your average utilities?  What do you need for groceries?  How often will you get a car?  New or used?  What do you need for supplemental medical expenses?  Health, dental, vision, and/or long-term care insurance premiums?  Co-pays and deductibles?  State and federal taxes?


Go big!

One of the things you need to get into your plan is “how long you plan to live in retirement”.  This is the big dice roll.  Who knows, right?  I recommend over-estimating. The average retirement age has been increasing over the past decade and, by most reports, currently stands at 63-64.  So too, life expectancy, until the last couple of years when we saw slight declines.  Mark Keen, a Certified Financial Planner and professional member of the Financial Planning Association, recommends his clients plan for 100.  He puts it this way: “We don’t want the account balance to go to zero before the blood pressure does.”


Here’s an example of the things you should account for in the plan.

How much income will you have coming in?  


How much is your pension going to be?  Social Security?  Investments, 401ks, Roth and/or traditional IRAs, thing like your federal Thrift Savings Program?  Again, get real.  Don’t just guestimate.  Take the time to get estimates from human resources, a copy of your SS statement, and investment portfolios.  Write it all down.


How are you going to fill the gap between those numbers?  


What’s the difference between the things you want/need, and what you’ll have coming in?  That’s what YOU need to save.


This planning document should be something you look at, at least once a year.  Ensure you’re on track.  Make adjustments as necessary.


Bridge the gap from two perspectives.


We can reach our financial goals either by increasing our income


  • Might you work longer, prior to retirement?
  • Will you work in retirement? Consult?  Start a business?
  • Could you invest or save more now to cover a future shortfall


or by decreasing our expenses


  • Where are the holes in your budget where money is leaking out?
  • Where might you be able to cut back?


Simplistic?  Yes!  A great place to start?  Yes!

I’m here.  I’d love your thoughts on the article, and am happy to answer any questions.

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