The Motley Fool Discussion Boards
Investing/Strategies / Retirement Investing
|Subject: Re: Asset Allocation||Date: 4/6/2006 7:36 PM|
|Author: aj485||Number: 50949 of 77872|
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.
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.
I guess I'm even analytical, because I would further assume that you will no longer be paying the 6.2% SS and 1.45% Medicare taxes (assuming you are a W2 employee earning less than the SS max). So I would adjust the formula to be:
(.85 - .062 - .0145)X = .04 Y, which becomes .7735 X = .04 Y or Y = 19.34 X
So an estimate of 20 times your income, assuming you are saving 15%, may be more appropriate.
Fools who have significant capital gain, dividend or self-employment income, or who make over the SS limit will need to adjust based on their individual circumstances, and this analysis still doesn't account for changes in your lifestyle, such as having a paid off mortgage, wanting to travel more, increased medical costs, etc.
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|