Working With Your Retirement Number

by: Roger Nusbaum

Doug Carey had a post at Seeking Alpha titled How Much Do You Really Need To Retire? The article crunches some numbers for a 40 year old couple with $200,000 already saved, assumes $5,000 of annual savings but with no mention of salary or expected salary growth. The author uses some software to determine they need $656,000 to generate enough income, combined with $25,000 in Social Security to meet a $40,000 post-retirement income need. The product of the author's scenario and software has the couple running out of money at age 107.

Then the assumptions are revised to assume cuts to Social Security of 10%, 15%, 20% and 25% and has them running out of money at 91 with that 25% reduction in benefits. As I read, I wondered what about a cut of 100%?

I've never thought the program was going to disappear, but the payout for some of us will be zero. Things need to change radically with Social Security and Medicare, and I think that means zero benefit coming down the wealth scale and clipping some folks that actually aren't all that wealthy. While I have no idea what this will actually look like, I personally do not expect to accumulate mid-seven figures, but I also don't expect to get much in the way of a benefit either.

By now it is fairly obvious that people below a certain age, maybe around 50 or so, should not count on the number they see on their annual social security statement. If it pays out as it says, and you saved assuming there would be nothing, then you'll have a pretty good margin of safety.

There are all sorts of other tips that people can do, like not spending your raises (assuming you get raises) but saving them instead; really the list is endless. And while these sorts of money saving tips can help, I will continue to bang the drum about finding your own innovative solution to creating some sort of income from something you love doing, and keep that income flowing in as long as you can.

If you can get your mortgage paid off early, reduce or eliminate other debt, and ratchet down the lifestyle some, then I think it would be pretty reasonable to have a $3,000-$4,000 monthly lifestyle. Using the 4% rule, a $48,000 income need would require $1.2 million, assuming zero Social Security benefit. Obviously not all of us are going to accumulate that much. Delaying retirement and then generating $2,000 from hobbies/things you love doing, which is not unreasonable with sufficient planning, brings the portfolio need down to $600,000. While that is not an insignificant number, it is achievable for people who make decent money and are good savers.

I want to stress that pulling this off will probably take years of planning. I would also stress the importance of being innovative. I've mentioned my neighbor with backhoe dozens of times. Another neighbor up here who is at least 75 is working on a high-speed internet service up here. I think it is WiMax, but he is working for the entrepreneur who started the service. It will probably take them a year. It is a finite project, won't make him rich but would relieve some of the burden of his portfolio for the year (if he has a portfolio, I have no idea, this is just an example for an innovative income idea).