So What is My Number??

I don’t know if anybody has really noticed the commercials that ING has been showing over the last few months about “your number”?  If not here’s the commercial I’m referring to.

While it’s no doubt that “your number” is important and the bigger it is, the better off you’ll be in your retired years.  What I try to get my clients to think about is what number gives you the ability to generate the  income you’ll need ( $60,000 per year as an example) over the course of your retirement years.  That’s the most important number.

I’ve heard financial planning  pundits proclaim that you need to have $1,000,000 saved by the time you retire. While that’s not necessarily a bad number, it is of course completely arbitrary, as the needs of different folk vary widely from others.  You’ve heard the old saying, “Different Strokes for different folks”.

The idea being that if you had $1,000,000, it would be enough to generate about $40,000 per year (assume 4% in annual interest) reliably in interest income, which, combined with another $20,000 per year in Social Security, would give you about $60,000 in income; your principal of $1,000,000 is left intact to keep the income distribution wheel turning, but would be available to access if things got tight, and the balance would be enough to cover any medical expenses and funeral costs at death.  Of course, none of this thought process takes into account inflation at all and the decrease in purchasing power that accompanies it.  But I digress…

My point is this…there really is no “right number”  there’s only “your number” and that number is determined by some basic math.  You just back into it.  Pick a conservative interest rate (4-6%) that you’ll try to earn on your retirement nest-egg and back into “your number” that way.   Be realistic and don’t expect to earn double digit returns after your working years…you can’t afford the risk.  If you don’t believe me ask the folks that lost 40% of their retirement accounts over the last couple years being invested in the stock market.