How Much Money Is Enough to Retire Now?

How Much Money Is Enough to Retire Now?

This question was recently asked in a discussion thread on and is common to what I am asked by individuals I meet.

My response:

Do you want a number or a process for determining the answer?

Your lifestyle goals are critical for determining the retirement cash flow needed. Whatever you do, don't simply rely upon bank interest rates to get you there or keep you in the lifestyle to which you'll become accustomed.

You will likely live as long in retirement as your working life. You need inflation protection and the only long-term way of achieving that is through equity market investments (consider no load mutual funds, index funds or better yet Exchange Traded Funds). There may even be a place for adding some types of annuities to protect against outliving your money. (Just look for ones with low costs). 

The lifestyle one chooses has a lot to do with it. My parents are still alive and lived through the Depression. They survive quite comfortably on less than $2000 per month and earn nearly $3000 per month. They don't travel, buy new cars or lots of clothes. They still save for a rainy day. And their biggest expense is medicines and doctor visits. but that's them and their upbringing. Everyone is different.

There are simplistic rules of thumb: 60%, 80%, 90% or even 100% of current income. In much the same way that insurance agents may recommend a multiple of your income (17x - 20x) to determine insurance needs, this can be done for retirement needs. But both methods don't adequately capture the subtleties of one's own circumstances.

Once you can truthfully answer the type of lifestyle, type of activities, expected longevity and health (gleaned from family history), then you can get a handle on future cash flows. Then there are a couple of steps: Step 1 - Consider all these costs of living in today's dollars and then inflate today's annual need to the first year of retirement; Step 2 - Determine the lump sum needed at the beginning of retirement to fund the entire term of retirement.

From there, you can estimate the amount of assets needed to be accumulated by retirement. There are offsets to this including the expected sources of income (government pensions/Social Security; retirement accounts; returns from asset investments). But this gets you the idea and into the right ball park.

There are all sorts of programs out there that can help you do this. (Even a HP 12C calculator if you know the key strokes). Quicken Financial Planner was a great tool but was discontinued when integrated into Quicken. Another software program developed by some academics is ESPlanner ( which is goal-oriented and figures out such questions based on consumption patterns throughout life. Since this is a dynamic process, you may want to consider using the expertise of a personal financial planning professional. 

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