What's the Magic Number I Need to Retire?


Two questions that loom large as retirement approaches are, “Am I on track?” and “How much money will I need?”. There are many methods that offer some guidelines that may help answer these questions. The reality is, though, no matter how many equations or theories you try, you must consider the broader picture: no two circumstances are the same. So, instead of depending on a unified method or formula to determine a magic number, evaluate the several approaches we've covered in this week's article to see which may or may not work for you in determining your answer.


4% Rule

There are several methods for calculating how much money you must save to get the desired retirement income. One of those many methods is the 4% rule. The 4% rule is a simple calculation that divides your target yearly retirement income by 4%. To generate the $160,000 mentioned above, you would need a retirement nest egg of around $4 million ($160,000 / 0.04). This method assumes a 5% return on assets (after taxes and inflation), no extra retirement income (such as Social Security), and a lifestyle comparable to what you would live in retirement. Remember that your life span is critical in assessing if the 4% guideline rate is achievable. Generally, the 4% rule estimates that you will live for another 30 years after retiring. Retirees who live longer life spans require their portfolios to last longer, and medical bills and other expenses might arise as you become older.


Current Salary Analysis

Some analysts believe that your retirement income should be around 80% of your pre-retirement annual salary. That indicates that if you make $200,000 per year in retirement, you'll need a minimum of $160,000 per year to live comfortably when you leave your employment. This amount can be increased or decreased based on other forms of funds, like Social Security, pensions, and part-time work, as well as variables such as your wellness and preferred lifestyle. For example, if you want to travel significantly during your retirement, you may require more.

If you’re just beginning your retirement planning journey, you can still use this method in a modified way. To start calculating what you'll need to save at various periods throughout your life, consider terms of saving as a proportion of your paycheck. Fidelity Investments recommends saving 15% of your gross income beginning in your twenties and continuing throughout your working career. This includes investments in various retirement accounts and any company contributions if you have access to a 401(k) or similar employer-sponsored plan.


Retirement By Age

Do you ever wish there was a method that just gave you a simple chart to find that magic number? Well, that exists too. Fidelity suggests the below guidelines for how much you should have invested for retirement by the time you arrive at the following ages, based on a multiple of your annual income:

Again, if you’re just starting to save for retirement, this method can still be used in a different form. To use this earlier on in your career, it is thought that you should invest 25% of your gross income each year beginning in your twenties. The 25% savings amount may appear intimidating. However, remember that it includes not only 401(k) assets and employer matching payments but also other forms of retirement savings. If you follow this technique, you should be able to save your whole annual wage by the age of 30. Continuing to save at the same average rate should result in the following:


Couples Retirement Calculations

According to many sources what a couple should save to retire comfortably is similar to an individual, depending on their current yearly income and the lifestyle they intend to live when they retire. Many analysts believe that retirement income should reflect around 80% of a couple's last pre-retirement yearly earnings. According to the table above, you should invest 10 times your annual salary by age 67.

Schedule A Consultation with an Experienced Financial Advisor

We hope the varying methods in this article have helped you better understand the different calculations that exist in determining your magic retirement number. Furthermore, we hope it has helped bring into perspective that every retiree's situation is different. If you’re ready to work with an advisor that will put your needs and future first, then we’re here to help. Our mission is to help you develop, implement, and monitor a strategy designed to address your individual situation to ensure all your investments are setting you up for a path of financial success. Contact us today at (304) 746 7977 to schedule a meeting with one of our experienced financial advisors or schedule online: https://calendly.com/fourthavenuefinancial/introductory-zoom.

Securities are offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services are offered through J.W. Cole Advisors, Inc. (JWCA). Fourth Avenue Financial and JWC/ JWCA are unaffiliated entities.

  1. https://www.fidelity.com/viewpoints/retirement/spending-in-retirement

  2. https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire

  3. https://www.investopedia.com/retirement/how-much-you-should-have-saved-age/#citation-4


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