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Don't Panic: Your "Retirement Number" Is Lower than You Think

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It's the question that haunts you as you approach retirement age: What's my "retirement number"?  The number represents how much you'll need in the bank before you can retire without having to worry about running out of money.

Though there's no surefire way to know with 100% certainty what this number needs to be, there are a dizzying array of variables to take into consideration that can make the process seem impossible.

But there is hope where many see despair.

The slideshow below takes the average American household -- a 50-something couple with take-home pay of about $50,000 after taxes -- and shows how many of the assumptions financial experts think you should make can overstate your retirement number by over 40%.

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Read/Post Comments (17) | Recommend This Article (55)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 26, 2014, at 12:12 PM, dmgirar wrote:

    Stop writing this garbage. There are a ton of people who must carry life insurance into retirement. If a married couple doesn't have enough in assets, and one passes away there is a really good chance the surviving spouse won't have enough coming in. As a real advisor, I see this all the time. Life insurance in retirement allows people to spend a little more and refill the money pool when the first spouse passes away. Great idea for an article, but stop telling people bad advice, they may act on it and since your not licensed, they can't hold you accountable for poor guidance.

  • Report this Comment On April 26, 2014, at 1:39 PM, TMFCheesehead wrote:


    While I understand the point you're making, I'm going to have to disagree within the context of the article. Clearly, if you haven't reached your "retirement number", then you don't have enough assets to survive on. That's assumed.

    Saying that you need life insurance b/c you don't have enough assets misses the point that these are assumptions we can make AFTER you have enough assets.

    Also, as the second-to-last slide makes clear, every situation is unique, and consulting a professional is a key piece to this process.


    Brian Stoffel

  • Report this Comment On April 26, 2014, at 1:47 PM, Donaldmathews wrote:

    Lets be honest for a second, it is going to take a LOT of money to retire, especially with average life expectancy continuing to rise. It is nice to give people peace of mind so they will not struggle, but we really should be encouraging people to save MORE not less. There are good ways to put away money, and after a hard look earlier this year I decided to start following the advice of the experts like Dave Ramsey and Suzey Orman. These were the best ways I found (for me) to increase my retirement savings.

    1. I now put away the maximum amount in my 401K (5% for me) that my employer will pay into the plan as a match. It is free money and dumb not to do it. It was basically a raise I gave myself.

    2. I need life insurance to protect my 2 daughters, but I ditched a $275 a month whole life policy for a policy from LifeAnt and now I only spend $25 a month. I save the difference to my Roth IRA. If you are unfamiliar with this and want to learn more watch shows or read articles from Suzey Orman or Dave Ramsey sometime. They are huge proponents of this method.

    3.I cut wayy back on eating out. I am having a year of putting away money hard, and food was a huge portion of my budget. I save about an extra $100 a week now, and eat healthier and better. Ditto for others if you spend a lot of money in bars.

    There really were no two ways about it. If I plan on having a full savings account (getting there) and a comfortable retirement (I will) I have to make good decisions with my money.

  • Report this Comment On April 26, 2014, at 1:56 PM, TMFCheesehead wrote:


    These are great suggestions. Maxing out your 401(k)--at least to the point of employer match--is a great idea. So is avoiding whole life, and living a more frugal lifestyle.

    I wrote an article touting much of what you're talking about a few weeks back which you can read here:

    Most importantly, however, I think you hit on a fine point that there's needs to be balance in this message. Basically, you're concerned that I'm making it seem like saving for retirement is too easy. That's why I included the following at the end:

    <<This does NOT mean saving for retirement is easy, or should be put off....This does NOT mean you should put off savings and spend your money on other things.>>

    In the end, I'm simply saying that the 80% rule can be off by a wide margin, but I appreciate your larger point nonetheless.


    Brian Stoffel

  • Report this Comment On April 26, 2014, at 2:48 PM, MyLine wrote:


    Did you even read the article? The article is figuring out what you may have to save. If you haven't saved enough, OF COURSE you may need life insurance. This article is going about that you HAVE enough. When you HAVE enough, you may not need life insurance. People don't need 2 million to retire-people see that number and think they will never get that much saved so why bother. I make around six figures but my spending a year is $25,000 and no, I don't live a bad/isolated life. I've been to Hawaii, Alaska 5 times, have taken many cruises, and have lived a pretty good life. How do I do it? My house is small, I live close to my work, and I rarely eat out. I figure I need about $750,000 to retire.

  • Report this Comment On April 26, 2014, at 4:07 PM, altha2008 wrote:

    A lot of people just thank of a big lump some and live off the interest.

    People need to consider Passive income from real estate, notes, tax lien certificates, small businesses

    It is a lot easier to do this then have $750,000 in your retirement account.

  • Report this Comment On April 26, 2014, at 5:52 PM, monkeyfurball wrote:

    What? Thats all? You just subtracted SS from the $50k and used that number.

  • Report this Comment On April 26, 2014, at 9:14 PM, baxelis wrote:

    I totally agree that the number you need to look at is what you expect to spend but have to disagree with pretty much everything else.

    1) The 4% rule (or multiply by 25) in articles I've read assumes a 7% return on investments and a 3% inflation rate. This already includes inflation so I don't see where the 1.5 million comes from.

    2) If you base your calculation based on what you spend, you better add an expense for taxes. The new, lower number had no taxes added in

    3) Insurance: If your employer is currently paying your life, disability and health insurance, health insurance will be a significant new expense even if you don't want the other two.

    4) Mortgage. You're assuming $12K of their $45K in yearly spending. Maybe they're renting or already paid it off. Maybe someone is retiring and still has a mortgage. This is a big generalization.

    5) Social Security: Most books, articles, etc. I've read say something along the lines of take x% of your income (or expected expenses), subtract defined benefits like pensions, SS and annuities and then calculate how much more you need AND USE THAT AS A STARTING POINT. Where did the advice to forget SS come from?

  • Report this Comment On April 26, 2014, at 9:29 PM, TMFCheesehead wrote:


    1) The inflation comes from the fact that the example I was using (the standard American household, according to the Bureau of Labor Statistics) has a 55-year old trying to figure out how much he/she will need in 10 years. The 4% rule only applies once retirement has begun.

    2) Though all the calculations weren't broken down in the slides, taxes were included in all of them.

    3) True, every individual has different circumstances. Though the vast majority usually need life insurance beyond the bare minimum that businesses supply. Further, the benefits of Medicare need to be taken into consideration when figuring how much one might pay.

    4) Again, fair, everyone has their own unique set of circumstances. I'm hoping someone who is reading this would know whether or not the mortgage would be paid off.

    5) There's lots of starting points to use, it really depends on your own personal situation. The advice (to ignore SS) is more general than anything, especially since when people are told to figure out the 4% rule, it entirely ignores SS.

    Thanks for the feedback,

    Brian Stoffel

  • Report this Comment On April 26, 2014, at 11:16 PM, kennyhobo wrote:

    The article ignored long term care insurance! But the best answers were those that told people to seek out professional advice. Ask your friends about their financial adviser. Find a good one and spend money, if you have to, getting advice for your unique situation. Major firms that do "wealth management", the new term for retirement planning, have sophisticated tools that can answer "what if" scenarios in seconds. They can run these with a Monte Carlo analysis giving you confidence levels (risk levels). If you don't understand what I just said, you need to see a financial planner. You probably should pay someone to help you. The biggest problem is finding a good planner.

  • Report this Comment On April 27, 2014, at 1:11 AM, emailnodata wrote:

    Here, boys, chew on THIS a while.

    -It is NOT your responsibility to leave your damned ADULT kids money!! Life insurance? I could see it to cover what the surviving spouse would lose in your pension income/soc security, but then again she's not having to pay for your dumb lazy butt.

    -Aging and dying are giant industries filled with parasites. Think of how Aunt Betty always suddenly dies right about the time all her assets have been pissed away to care for her vegetative state (of course, after the hip replacement, cataracts, wheelchairs, hoverounds....)

    If you are genuinely concerned about "retirement", then you won't retire. You'll work at something, eat right, cut out the boozing, and hopefully die on the job. If not, you'll get a gun and blow your brains out when you start to feel you're slipping away.

    Is that harsh? It's reality. I've live through the deaths of countless relatives...strokes, ms, senility, broken bodies....

    See, this is the stuff financial advisers won't tell you: getting old F-ing sucks.

  • Report this Comment On April 27, 2014, at 1:29 AM, emailnodata wrote: for the financials of old age...

    one of the posters hinted at it: it's all about income streams.

    Your social security can hopefully not be touched until it's maximized, and at that point replace your monthly basic needs financing that work used to cover.

    Next, if you have a pension, cool. If not, then maybe a rental property or part-time work or any other income streams you can generate; this is your "extra" money for when you're young-retired and want to enjoy life a bit.

    Now, finally, to your 401k/IRA....when you have to tap this puppy, you do NOT want to be spending it on trash. This is your old-fart nest-egg, and it needs to be nurtured and kept as whole as you can keep it. This is where a good financial adviser comes into play, especially as your own mind weakens.

    Just my opinion.

  • Report this Comment On April 27, 2014, at 5:39 PM, rotorhead1871 wrote:

    wow!....get many pensions....defined benefit too!..then max out SS.....then you be looking good.

    then enjoy!!

  • Report this Comment On April 28, 2014, at 6:27 PM, jimswim wrote:

    Nice essay. I'm curious about the video on the IRS rule, but to be honest, I've really lost my patience with the Foolish style of going on and on but never spitting out the answer. It's like they are cheap-trick sales shysters ...

  • Report this Comment On April 29, 2014, at 9:26 AM, Mathman6577 wrote:

    Many people might be surprised that their retirement number is actually lower than what many financial "experts" claim. My recommendation is to assume that your after-tax income needs to be within +/-5% of the value when working (an average of the last 5 working years plus any additional expenses like health insurance that you might have in retirement).

  • Report this Comment On April 30, 2014, at 11:18 AM, steveluannj wrote:

    I would have to disagree with the last post. I think that if you are ever to retire, your consumption before retirement must be less than your income before retirement. Your consumption is also less likely to make a sudden shift than your income, which by definition goes to zero when you retire.

    You also need to carefully estimate the fact that your tax burden will change drastically, and of course health insurance.

    From far off, simple rules of thumb are OK to give you a general idea of the general area of the target, but there is too much variation in retirement age, life expectancy, and almost every other input variable to allow a confident answer without a customized plan. I used every planning tool I could find before I decided I was there, and continue to refine estimates as I learn more about the reality of retirement.

  • Report this Comment On May 02, 2014, at 9:10 AM, Mathman6577 wrote:


    If you plan on spending more in retirement than you did while working you will never be able to retire. My experience is that you have to live within your means both before and after retirement or the numbers will not work out. I have been practicing and living on my "retirement budget" for the last 4 years to determine if I can do it with the income sources (*) that will be available when I retire (which will be at the end of this month at age 55 BTW).

    (*) in retirement there are lots of income sources (pension, investment withdrawls, dividends, bond income, SS, part time work).

    Rregarding tax burden -- it is likely to go down (your goal should be to go to a lower tax bracket in retirement).

    Regarding health expenses -- it is likely to go up.

    Other expenses will change too (less auto and gas expenses for expenses, less clothing, less ).

    The net effect is that you should plan to spend about the same in retirement that you did over the last few years while working (plus inflation).

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Brian Stoffel

Brian Stoffel has been a Fool since 2008, and a financial journalist for the Motley Fool since 2010. He tends to follow the investment strategies of Fool-founder David Gardner, looking for the most innovative companies driving positive change for the future.

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