Running the numbers
Now you are armed with just about all you need. To take an example, suppose you have determined that you’re spending roughly $100,000 a year after taxes. If your portfolio will return 6% (net, 4% after taxes), then simply multiply by 25 (the inverse of 4%) to come up with the portfolio you’ll need: $2.5 million. If you want to be very conservative, assume a 4% return (3% net), and multiply by 33 to yield a needed retirement portfolio of $3.3 million.
- Take what you spend in a year
- Multiply that by the inverse of a 4% return on portfolio, or 25
You spend $100,000 a year
- $100,000 × 25
- You need $2.5 million
Many financial Web sites do allow you to calculate how much to save, however. A site that covers the gamut of calculations is www.dinkytown.com. One piece of information it asks for that is hard to define is the expected return on investments during preretirement years. With a portfolio tilted toward growth, using a pretax return of 7% to 9% is a safe assumption. Running the calculation at both 7% and 9% sets the parameters for how much you need to be saving now.
Hopefully, the number you come up with will not break the bank for you. But if it does, there is always that deluxe mobile home.
Go to www.dinkytown.com to evaluate your retirement savings, prepped with:
- Your age (now)
- Household income
- Rate of return before retirement
- Percentage of income to contribute
- Years of retirement income
- Expected rate of inflation
- Age at retirement
- Current retirement savings
- Rate of return during retirement
- Expected salary increases
- Percentage of income at retirement