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How much do you need to retire?

Much like stepping on the scale after the holidays, the amount of money you’ll need to comfortably retire is the number many Americans aren’t sure they want to know. In fact, nearly half of Americans haven’t even tried to calculate how much money they’ll need to retire – including a whopping 46% of all financial planners. However, just like those extra pounds, ignoring the problem won’t make it go away. You can’t manage your health if you can’t measure it. And the same goes for your finances. You can’t reach your financial dreams unless you know precisely how much it will take to get there.

Time to get your head out of the sand and do some easy number crunching to find out where you are and where you need to be. Remember this: anticipation is the ultimate power. Losers react; leaders anticipate.


How an ultimate retirement calculator works

The ultimate retirement for most of us would be to achieve complete financial freedom to do whatever we want with no fear of running out of money. This could include spending your golden years traveling, exploring new hobbies or simply buying a home in the mountains so you can relax with your loved ones.

For the ultimate retirement calculator, you would need to figure out what this type of lifestyle would cost on a yearly basis and ensure you were putting enough money away to save for at least 20 years of it, accounting for inflation and increased cost of living. More than likely, this number will be overwhelming. For most people, it’s better to instead rely on a realistic retirement calculator that will allow them to maintain a fulfilling lifestyle after they stop earning an income.

Image©lui jian/shutterstock

The goal of a realistic retirement calculator  

By now you should know that failing to plan and just hoping Social Security will carry you through retirement is a recipe for disaster. Although the Social Security Act eased the suffering of millions of Americans during a time of crisis, it was never intended to become a replacement for retirement savings. 

Fifty years ago, the average retirement was 12 years. Someone retiring today at age 65 is expected to live to 85 or longer. Twenty-plus years of retirement has become average, meaning many of you will live much longer. Furthermore, 52% of American households are “at risk” for not having enough money in retirement to maintain their living standards, according to the Center for Retirement Research.

Using a retirement planning calculator to build a money machine

What is a realistic retirement calculator for the present day? How can you plan on how much money you’ll need when you don’t know how long you’ll live? It all comes down to building enough wealth to fund the longest possible number of retirement years.

You MUST build a money machine, harnessing the power of compounding to create an income stream for the rest of your lifetime. In other words, you must automate your savings in a tax efficient manner and utilize an investment strategy that will keep earning in any season. A “how much do I need to retire?” calculator becomes less important when you have the right strategy in place to build future wealth.

Grow your savings to a point at which the interest from your investments will generate enough income to support your lifestyle without having to work. Eventually you reach a “tipping point” at which your savings will hit a critical mass. This simply means that you don’t have to work anymore – unless you choose to as a means of fulfillment – because the interest and growth being generated by your account gives you the income you need for your life. This is the pinnacle we are climbing toward and where a retirement planning calculator comes in handy.

There are two phases to your investing game: The accumulation phase, in which you are socking away money for growth, and the decumulation, the period in which you are withdrawing income. The journey up the mountain will represent your accumulation phase with the goal of reaching the pinnacle, or critical mass. The goal is to stay on top of the mountain for as long as you can. And when you enter the second act of your life, you will have the freedom to work only if you want to.


Using a retirement planning calculator to find your “magic” number

So what is that mountain top number for you? Well, really there is not just one “magic number,” but five different levels of financial dreams that will free you from financial fears. However, for simplicity’s sake, today we’re just going to focus on the number you would need to maintain the same lifestyle you have today for the rest of your life, without having to work. 

To find this number, you first need to calculate how much money it takes to maintain your current lifestyle. To clarify, this is not how much you earn, but how much you spend. So if you spend more than you make, then you’d use the number you actually spend. If you make $100,000 but live off of $80,000, then this number would be $80,000.

The next step of the retirement planning calculator is to multiple this number by twenty. This simple calculation will give you a rough idea of how much you will need to maintain your lifestyle through retirement.

Many financial planners will tell you to multiply your annual income by 10 or even 15. But today, with such low returns on safe investments and with most people looking for financial certainty in uncertain times, that’s not realistic. Remember, on the way up the mountain (the accumulation phase), you might put your investments in an aggressive portfolio as you strive to build wealth. But on the way back down the mountain, you want to put your investments in a less volatile environment that will result in smaller returns but more stability. So it might be smarter to use 5% as a more conservative assumption. Ten times your income assumes a 10% return. Twenty times your income assumes a 5% return.

Getting help with your realistic retirement calculator

What is your number? Are you having trouble arriving at a realistic amount that makes sense? Or are you worried that you are not putting in the necessary work to build a money machine that will sustain you in retirement? If you need some assistance utilizing a retirement planning calculator or developing a strategy to create a lifetime income stream, consider working with a fiduciary or hiring a Results Coach who can help you on your path to financial freedom.

Remember, clarity is power. Once you figure out your number with a retirement planning calculator, get there faster with these five practical strategies

Team Tony

Team Tony cultivates, curates and shares Tony Robbins’ stories and core principles, to help others achieve an extraordinary life.

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