Retirement math can be enough to drive anyone a little batty. If you’ve got handle on these 3 factors, though, you’re off to a good start.

Professionals love complications. Trust me. I’m a lawyer. I know. We love using fancy words and really long sentences. Uttering something in Latin is even better. “Nunc pro tunc” is my personal favorite because it makes me feel like a time traveler.

Retirement planning should not be so complicated. We can put away the Monte Carlo simulators and fancy calculators. We don’t need a thick, smartly bound plan from a financial adviser. In fact, all we really need to understand are the following three numbers.


How big of a nest egg do you need for retirement? While that may seem like a complicated question, it’s not. Take your anticipated annual expenses during retirement (some use their current income as a proxy), subtract your expected Social Security and pension benefits and then multiply by 25.

For example, let’s assume you’ll need $75,000 a year in retirement and you’ll receive $25,000 a year in Social Security and pension benefits. Your nest egg needs to be $1.25 million ($50,000 x 25).

The logic behind the number 25 is simple. It assumes that a retiree can withdraw 4 percent of his or her investments each year without substantial risk of running out of money. Did you see what I did there? I snuck in the word “substantial” just before “risk.” Yes, it’s a lawyer trick designed to give us an out. But it’s important. There are no guarantees here. But a 4 percent withdraw rate is a safe bet, according to the experts.


Saving 25 times your annual expenses is a big number. If you are decades from retirement, it’s fair to ask just how much you need to save to meet this goal. The answer depends on how fast you want to get there. However, as a general rule of thumb, saving 15 percent of your income should get the job done.

If you start much later in life, you’ll need to save much more. If you want to retire early, you may need to save a lot more than 15 percent. A good resource to see exactly where you stand is called “Your Money Ratios.” Written by Charles Farrell, this book will give you a good idea if you are on the right track given your age, income and retirement savings.

Your age

We need to have an estimate of the returns we can expect to receive on our investments. I use 8 percent for planning purposes. So you are probably wondering why the third number isn’t eight. Here’s why:

In order to earn 8 percent on average, it’s critical to have the right mix of investments. Play it too “safe” with lots of fixed-income securities, and it’s less likely that you can meet your retirement savings goals. On the other hand, putting everything into emerging market debt is likely to give even the most aggressive investor motion sickness.

As a good rule of thumb, you can use your age to devise a solid investment plan. Simply subtract your age from 100 and invest that percentage of your assets in equities, with the rest in bonds. For example, at 20 you would invest 80 percent in stocks and 20 percent in bonds. At age 50 it would be an even split. Some investors get a bit more aggressive and subtract their age from 120 instead of 100. That tilts the scale in favor of more equities, but is still a good rule of thumb.

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