The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Asset Allocation||Date: 4/6/2006 5:08 PM|
|Author: ptheland||Number: 50946 of 77554|
Also, just how much money do YOU think a person needs in order to retire?
OK - to stick my neck out I'll say between 22 and 25 times your annual income would be in the right ballpark. Or perhaps more correctly would be about 25 times your expected annual retirement expenditures (with the expenditures including taxes).
Here's the math. Let X be your income before retirement. And let's assume that you save 15% of your income each year. (You can change this assumption later if you'd like.) Finally, let's use a withdrawal rate of 4%. That's the percentage of your retirement nest egg that you will withdraw each year - and my best recollection of the oft-discussed SWD. Again, you can adjust this as you see fit.
Since we assumed you're saving 15% of your income, you are spending 85% of it on something. And once you retire, we'll assume you stop adding to your retirement savings. So you really only need 85% of your pre-retirement income to live on. If we let Y be the retirement nest egg needed, we've got:
.85X = .04Y or Y = 21.25X.
Your retirement savings would be 21.25 times your annual income. I rounded that to 22 times.
If you are a better saver and put away 25% of your income, you'll only need to save about 19 times your annual income. And if you emulate some of the FIRE stories you read and save 40% of your income, you only need to accumulate 15 times your annual income.
Yes, this is oversimplified and far too analytical. It doesn't give any consideration to changes in lifestyle. But at least its one tool to use to start estimating what you need to accumulate.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|