7 Minutes to Calculate a Real Retirement Savings Goal

The other day I wrote about a simple formula to calculate what you need to save for retirement in a post called “What’s your retirement number?”,

It’s the million dollar question… How much do you need to save for retirement?  In that article we calculated your retirement needs in literally 1 minute.

But that level of simplicity doesn’t tell the whole story.

Today, we’re going to dig in a bit deeper.

7 Minutes For A Better Retirement

If you remember the other day, we simply took your monthly expenditures in retirement, and did a little calculation.

This was the formula:  Monthly retirement expenses multiplied by 12 months = Annual Expenses

Annual Expenses Divided by 5% = Needed Retirement Savings.

Easy as pie.  But we left some stuff out.

Do you really need $1.2 million to retire?  When doing our calculations, we figured you’d need $1.2 million to retire.

That’s a lot of money!

The reality is, when you calculate your retirement number, your actual needs might be a bit lower.

Let’s stick with our original assumptions. You need $5,000 a month or $60,000 a year to retire.

In the other article we only focused on what you’d need to save. We ignored other income streams like Social Security.

Will You Receive Social Security?

Most Americans are paying into the Social Security Trust fund… and they expect to get that money back.

The SSA (Social Security Administration) has this handy calculator to figure out what you should get paid in retirement.  Try out this simple calculator: https://www.ssa.gov/OACT/quickcalc/

You plug in your birthdate and your earnings this year. Leave the retirement date blank, and it will calculate for you the amount of your payout.

For example, a 50 year old earning $60,000 a year can expect to receive between $1,343 and $2,539… depending on when you decide to take your retirement.

This has a huge impact on your retirement savings estimates.

Let’s go back to our example… you estimate you need $5,000 a month for expenses. Let’s assume you retire at 67 years old.

Your Social Security Payout will be about $2,000. So, if you need $5,000 and Social Security pays $2,000… you’ll need to cover $3,000 in monthly expenses.

Back to our formula…

3,000 x 12 = $36,000 in annual expenses

36,000 / 0.05 = $720,000.

Simply by calculating your expected Social Security Payments, you reduced your estimated nest egg by $480,000! Early retirement… Here I come!

Is Social Security The Only Thing To Impact These Numbers?

Not by a long shot.  If you have a pension, and it provides regular payments, it will change everything when you calculate your retirement number.

Calculate pensions just like we calculated Social Security above.

Another thing that will impact your calculation of a retirement number… Rental Houses.

I’ve got a friend who owns 2 rental houses. He expects them to be paid off by the time he retires. He’s getting about $2,400 a month ($28,800 a year) from those two rentals.

Not a bad income stream if you ask me…That’s like having an extra $576,000 in his savings account!

This is why it’s so important to look at your other streams of income. Having extra money flowing in every month goes a long way to helping you retire early!

Let me address one big Pink Elephant in the room…

Personally, I don’t think I’ll get one red cent from Social Security… (I hope I’m wrong).

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