How To Calculate What You Need For Retirement

Worried About Retirement and Asking Am I On Track

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If you’ve ever wondered “Am I on track for retirement?” or “How much money do I actually need to retire?”, this episode is for you.

In this episode, I’m talking about how to determine whether you’re on track for retirement and why relying on generic retirement numbers and calculators may be keeping you from making the progress and decisions you need to feel confident about your future.

By the end of this episode, you’ll understand the three simple numbers you need to calculate your personal retirement target—your timeline, your annual spending, and your retirement number so you can stop guessing, gain clarity, and create a realistic plan for retirement based on your actual lifestyle.

Topics covered in this podcast episode:

• How to know if you’re on track for retirement

• Why you need a retirement timeline before you can measure progress

• How to choose a realistic retirement age or target date

• Understanding the true cost of your current lifestyle

• The importance of including irregular expenses in retirement planning

• How to estimate how much money you need for retirement

Related Episodes:

Episode 160 Worried About Retirement? Here’s How to Start Taking Action

If today’s episode helped you start thinking differently about whether you’re on track for retirement and how much you actually need to retire, the next step is getting clarity on your own numbers.

That’s exactly what we do inside the Retirement Strategy Session.

Inside, you’ll calculate your personal retirement number, identify any gaps between where you are and where you want to be, and walk away with a clear action plan for what to do next to make retirement possible.

Unedited Transcription of Episode:

‍  Welcome to another episode on the Wealthy After 40 podcast. Have you ever stared at your retirement account balance, whether it's a statement or on their website, and you thought, "Is this gonna be enough?" And then you close the tab or you tuck the statement away and you're like, "I'm not sure how to answer that," or, "I don't have the time to answer that,"

this episode is for you. Less than 20 minutes, I'm gonna help you answer that question, is this going to be enough? The reason we keep pushing retirement to later is because we're either just finishing the most busiest season of life, raising kids, managing our debt, or handling rising costs, maybe caring for aging parents.

And so it's easy to say, "I'll deal with retirement later. I'll worry about it later. I'll worry about it when I have time," because there is so much, or we're so exhausted having just gotten out of it, and it's like, "Now what do I do?" So today, I'm going to help you figure it out very simply. I'm gonna give you three things to help you know if you're on track: your timeline, your number, and a simple formula.

That's it. All right, let's get started. So the first thing is you need to know your timeline. Now, what do I mean by timeline? This is your goalpost. This is your retirement date. This is your goal. This is what you're aiming for. I talk about it in episode 161, called Understanding Your Timeline. So if you're not sure how to figure this out, all of the details, I go...

in that episode, I go deeper. But the reason you need to have it is that you can't measure your progress towards a goal or a destination that hasn't even been chosen, i'm gonna retire some day, so how much do I need? When? Why? How? All of those questions, ? So the very first simple thing you can do is pick a retirement age.

And I know this is scary because you're like how do I know I'm gonna have enough money at that age?" This is your starting point, okay? Just because you pick this age, pick this date, pick this number of years, ? It can be in any form of that, does not mean that it's going to be exact, but it's going to help us get started.

Again, step one. Understanding how to pick this age or these number of years, ? We've gotta understand what are the age restrictions on 401s, IRAs, Social Security 'cause we have early, mid, and late withdrawal, pension, if you have one, there's going to be some age restriction there. And then do you have other investments outside of that?

They don't typically have age restrictions. So understanding those briefly will help you also choose an age, ? Thinking through what age would each income source kick in, ? It adds to that whole idea of when can I, because these things are going to come and help me replace the income I am making.

But the reason you need t- to choose a timeline, know your timeline, again, age, the year, or number of years left, ? Those are the three forms it can be in. Having this will turn your retirement from a vague someday into an actual goal you can actually measure with. Because once you know when, then the next question is, how much will I need?

Okay? Actually, it's how much it's going to cost So step two, you need to know the cost of your reality. Okay, that's a little phrase I came up working with one of my clients to really understand what your life costs. Okay? What does it cost to live, enter your name here, family name, whatever. What does it cost to live your life?

It's going to be different than your neighbor. It's going to be different than your sibling. It's going to be different than your coworkers. But you need to understand your current spending because your current spending is the best starting point for your retirement number. What you're spending is what you're going to have to replace We'll talk about what's gonna change in retirement in the next step, but knowing what your s- what your cost is now, it's going to fluctuate slightly, but we've gotta get clear.

Now, you're gonna look at it monthly. Okay, housing, groceries, utilities, fuel, insurance if you pay that monthly. But there's another category that most people miss, and that is all of the other costs associated with our responsibilities. I call these irregular expenses. Some of you call it unexpected expenses.

But honestly, these are for responsibilities you have. They just don't happen monthly, so you've got to understand the cost of your life over a year, ? That is the total number we want. Yes, by month for everything that happens in that month always, and then looking at the irregular ones, home repairs, car maintenance, holidays, vacations, medical, annual subscriptions, ?

You know the things. And then figuring out what that cost is for the entire year. So making sure that you include those irregular expenses 'cause that is usually the trip up, the problem. I'm currently working with a client in retirement, still an issue, so you gotta figure it out on the forefront and not wait for it on the backside of it, ?

We've gotta understand now what is the cost of your reality? All right, so now that you know when you're gonna retire, I hope you declared that. That is the biggest step, and honestly, it's going to create the most excitement. And then once you know what your cost of your reality is for your year, we're gonna take those-- we're gonna take that number, and we're gonna calculate your actual retirement number,

loosely, but based off of today, because this is a best scenario. Those generic calculators aren't taking into effect the cost of your reality. They're not taking into effect how you live your life, they're just not even where you live. So if you calculate your expenses, it's going to give you a better number.

All right, so we're stepping into formula mode. I promise this is not gonna be hard. Very simple multiplication, because if you've calculated your annual expense, to me, that's the hardest, okay? So we're using a formula that the FIRE community-- Now, the FIRE community is financial independence retire early.

These individuals, that's what they're living on. This is their formula they're using, they don't go to a financial advisor for their models and all of those things, so the-- this is the formula they used, and it has been successful. So it's going to give you a place to start, a real place to start, because the first thing you're gonna start with is annual expenses.

So that number from step two, you're going to multiply that by twenty-five. I know that sounds like a random number, but it is not, okay? So your annual expenses times twenty-five is going to give you your retirement number. Now, why is this going to work? Or how is it going to help? Most people want to maintain their lifestyle into retirement.

They're not necessarily building a new one. So your current expenses are your lifestyle it's the best data that you have. It's the best numbers that you have. It is as personal as you can get in this moment, and you already have it if you just take that moment to calculate it Now, there's your number to strive for,

we have our goalpost and we have our number that we're going to try to hit to get there. Now, this number can be fluctuated multiple ways, but that is the beauty in it. If you pay off your mortgage, that number's gonna go down. If you pay off debt, if you have other debt beside your mortgage, it's going to go down.

As you retire you're not gonna have work-related spending, you're not gonna have commuting expenses, so it's gonna go down. Yes, you might have healthcare if it's coming out of your pocket. You might have some other exciting things that you can now do or do a little bit more, but you have control over those things So even if you start with your current expenses and don't adjust anything,

just you're like, "That didn't make sense. I didn't understand it." Just start with your current expenses, don't adjust anything, and shoot for that number. You are already ahead of where most people begin it doesn't have to be hard, complicated, any of those things. And if you're saying this is just too simple," or, "I need something more," I would love to have you attend my Retirement Ready Workshop.

I've held it twice this year already. We're holding it again, we, me, at June 27th, noon Eastern, 10 o'clock Mountain, for two hours. It is a Saturday. I will walk you through a little bit of what we've just done. That's the basis of it, but then we dive into it deeper, looking at it from different angles, understanding how to tackle that gap.

So now you have a savings amount and a retirement number, but what are you supposed to do? And the workshop will answer that. It'll help you understand these are the steps that you need to do after you've calculated these three things. Okay? So if you do these, you'll be a step ahead in that workshop, you'll have a really good understanding, and then you'll know what you need to do from there.

So let's recap. Number one, know your timeline, okay? Not just know it, I want you to declare it. Pick a retirement target age. Age, number of years whether you wanna go off a year, like a 2029 or something, whatever it might be, okay? Declare that. I worked with a gal this past winter and I said, "Okay, we've gotta work on this.

You've gotta declare it." And she emailed me and she said, "I just told my boss my date." That makes it even more real. I'm not saying you have to do that, but for her, it really solidified, "I'm going to, get this into place." The second thing is knowing the cost of your reality. Understand what it costs to live your life, what it is to maintain that lifestyle, because more than likely you're not going to reinvent.

You might add a few pieces, lose a few pieces, ? So this is the living that you need to do. And then apply the rule of 25. The FIRE community has been doing it for a long time. What is your annual expenses times 25 equals your retirement number So to close off, you don't need a perfect plan. You need your numbers, and now you have a way to find them If the workshop is too far away for you, you're like, "I want to get started today," because summer is such a time when a lot of people are like, "I want to retire," and I get that.

Summer is great, and it's great in retirement. So if that is you and you want to do this same work and similar work to the workshop, book a retirement strategy session. In 90 minutes, we'll have your real number. I'll help you find the gaps, and I'll give you the action plan of what you need to do to close those gaps over the next however many years you declare.

I'll even support you in finding a comfortable number there. So link for the strategy session is down in the show notes, or you can find it on my website at elevatefinances.us. I would love to have you head over there, schedule that session if you don't want to wait for the workshop. The workshop is also over there.

You can go and register your spot. But those are two ways that you can really determine if you're on track for retirement, ? You can do the workshop. It's on a set time, sc- set schedule. It's live. I would love to have you be there. But if you're like, "That's not gonna work for me," then the strategy session can be scheduled on your time.

Just remember that if you keep pushing it to later will run out, and later will deny options. The sooner you can find just a window of time, 90 minutes or two hours on June 27th to get yourself started, will get you there quicker instead of just pushing it off, Tucking away that statement.

So I hope you'll join me in one form or the other. We'll see you next week.