Hi Steph,

A lot can change in 20 years, so it’s there won’t be any one right answer to your question. Your best bet is to get a general idea of what you need and refine it as you get closer. First off, assuming no situational changes, you can live on 70-75% of your gross since you’re saving 20+% plus what you pay for SS. Your taxes should be lower since you’ll also need to live off principal. Since you plan to pay off your mortgage before retiring, it should reduce expenses another 25%. So you should need anywhere from 40-50% of your present income to live in retirement assuming nothing changes. Your pensions will provide about 25% of your retirement income, so investments will need to provide an additional 15-25%.

Two factors that will affect your needs are inflation and the length of time you’ll need these funds. With retiring at 50, I’d say you’ll need to plan on living for at least 40 more years, maybe even 50 years. While inflation will increase your expenses, I personally find the numbers hard to believe (my plan says I’ll need $200k if I live to the year 2048), so I don’t work with inflated numbers. I work in today’s dollars for expenses and assume that income will increase to offset inflation. Also, I’m about 7 years away from retiring so inflation compounding isn’t as significant as 20 years is for you.

Here are some other things to be aware of in you planning. What happens to DH’s pension should he pass on either before or during retirement? What about health coverage should the above occur? Any lifestyle changes in the works for the near future (i.e., kids), or at retirement (i.e., more travel, move to new area)?

When I started my retirement planning, I had no idea what we would need. So I started with $1 million as my goal with a 5% withdrawal rate and retirement age at 62. When I hit 50, I refined my pension numbers, added a SS benefit and was able to lower my goal to $650K, with a withdrawal rate between 3-4% and retirement at age 60 (mainly because this is when health coverage kicks in). I’m in the process of reviewing the numbers again. So work with the numbers you have and revise them every 3-5 years. You might increase the frequency at 10 years from retirement and go to at least annually at 5 years.

Calvin