What’s Your (Retirement) Number?

As Certified Financial Planner™ professionals we are often asked, “How much money will I need to retire?”  Or, “What’s my number?”  Sounds simple enough right?  After all, we do this stuff everyday. Can’t we just pull out our trusty financial calculators, punch in some numbers and provide a quick answer?  Unfortunately it isn’t so black and white.  After all, we are all very different both in our ability and desire to save and in how we spend our money.  One size most certainly does not fit all when it comes to retirement.  You’ll first need to answer the following questions before you can begin the process of identifying your ‘number’.

1) Time

When will you retire?  Specifically, how much longer do you have to save?

2) Savings rate

How much will you be able to save between now and retirement and how frequently?  Bi-weekly, monthly, quarterly, annually? Pre-tax, post-tax?

3) ROI (Return on Investment)

What is the expected annual return of your investment portfolio now and during retirement?  While you can’t guarantee what your investment returns will look like, there are some great planning tools that can evaluate the risk/return profile of your current investment portfolio and assign an assumed rate of return based on historical averages of portfolios like yours.

4) Expenses (Withdrawal Rate)

What will you spend in retirement?  When and how much will you need to take from your portfolio to cover your expenses?  We know…how can you possibly estimate what it will cost you to live in retirement?  There are several ways to estimate this and come up with your ‘assumed expenses’ and all involve the next item…

5) Inflation

How much is the cost of living likely to increase until and during your retirement?  You can use history as a guide and we recommend illustrating multiple scenarios to see the impact of higher inflation or lower inflation on your portfolio as well as your expenses over time.

6) Income

Do you have a pension(s)?  If so how much will you receive each month? How about Social Security? What are your estimated benefits? Have you analyzed when is the optimal time to start? 62, 66, 70? Have you considered spousal benefits?

7) Longevity

How long do you think you and/or your spouse/significant other will live?  Or put simply, how long will your retirement last?  20, 30, 40 years?  With the advances made in medicine over the last 30 years, people are living longer and longer.  Will your portfolio survive with you?

Once you have gathered all of the data, it is important to run several scenarios with a range of estimated returns, in addition to scenarios including both high and low inflationary environments, and higher and lower withdrawal rates to show the impact of withdrawals on your portfolio. By illustrating multiple scenarios you can get a better understanding of your likelihood of success. And ultimately this will help you identify your ‘number’.  And you may be surprised…it might not be as big as you think.

So what’s your (retirement) number?  Contact us today to find out.


About James Dwyer, CFP®, AIF®

James Dwyer has worked in the financial services industry for over 15 years. He is currently a partner at Providus Advisors, an investment advisory firm located in Chandler, AZ.

Please Note: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities. Please visit our Important Consumer Disclosure for more information.