Clients often appear
confused and perplexed when it comes to retirement. For sure it’s an emotionally charged event in
just about everyone’s life. Here is a
very simple yet financially sound calculation you can easily do on your own. The numbers I give below are just
examples. You can plug in your own once
you understand the method.
Let’s being on the premise
that you’re earning $60,000 annually. I
often ask clients would you like to maintain your current lifestyle? For
this illustration, let’s assume you say yes.
While starting at $60,000, you have to make an assumption as to how much
your assets and/or business will yield over the years. I don’t think it’s too far out of the realm
to say 10%. Then one must factor
inflation and the dreaded taxes. Let’s
say taxes and inflation total 5%. This
is where you stand.
$60,000
10% interest earned
5% for taxes and inflation
Here’s calculation.
Take $60,000 salary and
divide it by 5. We come up with 5 by
subtracting 5% from 10%. In other words,
we subtract the 5% for inflation and taxes from the 10% you earn on your
investments. We then get this.
$60,000 divided by 5
equals $12,000. From here we simply
multiply the $12,000 by 100. The result is
$1,200,000. This is the amount you need in your
retirement nest egg to safely withdraw $60,000 each year.
Seems daunting? That’s why I suggested in an earlier post to
start now rather than later. Keep in
mind the pot of $1,200,000 is a combination of ALL assets,
CASH, Annuities, Mutual Funds,
Income Producing Property to name a few.
So work around those
numbers under different scenarios. It
works.