Don’t be misled by what you may have read.

You may have read that you need 70%, 80%, 90%, or even more of your pre-retirement income to retire. Or, you need X times your current income at age N. Nonsense. Higher income people with significant savings will not have the same retirement needs as lower income people with less savings. Ignore these so called requirements.

You need to focus on expenses, not income, and you need to recognize that the number and variability of factors that affect outcomes is so high that any number-based result is likely to be off by a very wide margin.

For example, how well do you believe these variables can accurately be predicted ten or more years into the future?

• Future investment returns and inevitable stock market declines.
• Future inflation and interest rates.
• Future healthcare cost increases that are likely to continue increasing faster than the overall inflation rate.
  
• Future Social Security benefits.
• Future tax rates.
  

Understand what your exposures are in retirement.

• You don’t have any assets that are expected to grow in the future, that is you have no protection against inflation.
• You do have assets, but they are not diversified. They all go up or down together.
• You have some assets, but they are not readily available for emergencies.
• Your income will be primarily based on Social Security, meaning you are subject to the whims of Congress.
• You don’t plan on living for 30 more years when, in fact, you very well may do so.
• You plan on working for longer than your health my allow you to.
• You don’t understand how various types of income are taxed. You pay more in taxes than you need to.
• You retire in a state with high state taxes. States that tax social security benefits are especially onerous.
• You begin giving family members money at the expense of your own well-being.
• You discover that you are underinsured. Think health problems and auto accidents that are not covered by insurance.
• You wish you had not taken out that 401(k) loan 15 years ago.
• You get scammed and are so embarrassed that you tell no one. This is far more prevalent than you realize. And despicable.
  

For your working years, 20-40 years to retirement

Many articles in the financial press suggest that you need to put aside for retirement a minimum of 10% of your gross income for your working years, 15% would be a better goal, and 20% would be optimal. This is more nonsense. You need to set aside something regularly. If you can learn to live below your means as a lifestyle you can set aside money for retirement and you will find it much easier to meet expenses in retirement and maintain your standard of living. 

Getting closer to retirement

When you have reached five or ten years of your desired retirement date, you need to guard against the possibility of a severe market decline that could take you years to recover from. If you manage your own investments consider moving into more conservative allocations of stocks and bonds. If you employ a registered investment adviser, discuss with him or her how your portfolio might be best allocated to reduce risk prior to your expected retirement date.

My experiences reviewing investment portfolios prepared by brokers for people who are close to retirement or already in retirement have been a bit shocking as I believe they are too aggressively invested and do not take into account the complete financial picture of the client. For example, I cannot think of a single reason why an 85 year old widow should be holding a portfolio that is made up of 60% or more of stocks. Your goal is not to make your broker rich, your goal is to assure your money is invested to meet your financial objectives while minimizing risk.

What if I haven’t put money aside all my working years, but want to know in how many years I might be able to retire?

You can get a very rough estimate for this using a business calculator, hiring a financial advisor, running online estimators you can find by doing a search on “retirement calculator”, or developing your own spreadsheet of anticipated future income and outflow.  These will give you only a rough estimate, but that’s superior to having no estimate.

If you are numbers oriented and can deal with basic calculations in spreadsheets, take a look at Lifetime Financial Roadmaps. These will go a long way to answering your questions about when you can retire.

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