How much money do you need to retireThis is one of the most common questions we get when discussing retirement plans with our clients. Recommendations from financial experts vary widely, from eight times your required income needs to 25 times.

Given the current interest rate environment and the stock market variability we have seen over the last several years, I believe 25 is closer to the right number than eight. I would hate to have eight times saved, only to have it fall short of my needs during retirement because the market has taken most of it away. Remember when the Dow Jones Industrial Average reached a high of 14,164 in late 2007 and then lost 50 percent of its value over the next 18 months?

There are a number of tools available to calculate the income you will need in retirement. I think Fidelity Investments has one of the better tools. They estimate potential income growth by using a Monte Carlo simulation that incorporates more than 250 hypothetical market outcomes. Then they provide a graphical presentation of your expected results, as well as your results if the market were to perform poorly.

Any simulation tool you use will require you to make a number of assumptions, including:

  • Your anticipated expenses in retirement
  • The annual inflation rate
  • The age at which you plan to retire
  • Your life expectancy (Many advisors now use 92-95)
  • Your current liquid net worth
  • Assets you expect to liquidate prior to or during retirement
  • Expected Social Security benefits
  • Any annuity income you expect to receive from rental properties, the sale of a business, etc.
  • The amount you currently save each year for retirement

Remember, these are all assumptions – which is another reason I use the 25 multiple, versus eight. I really do not want to run out of money if I make a bad assumption.

If you are concerned about your retirement plans, here are some steps to take now:

  1. Meet with a qualified financial planner to review your retirement needs and develop a realistic plan to meet those needs.
  2. Work with your planner to structure an investment portfolio that is in line with your risk tolerance.
  3. Update your plan annually to chart your progress. Consider simplifying your assets to make your portfolio easier to track.
  4. If you are not currently on track, start saving more now and consider extending the date of your retirement.


David Shaffer, Kreischer MillerDavid E. Shaffer is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email



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