How Much Should You Have When You’re Retired?
You know, the thing about thinking about retirement is that it’s neither a lot of fun nor inspiring. I mean, yeah, I know all about the magic of compound interest, especially when it’s dragged across 40 years. But heck! Who wants to retire at 70? I want to retire when I’m still healthy, when I can still bring my family around the world without arthritis or a replaced hip or even a whellchair!
But that’s beside the point, since to address that we need to concentrate more on wealth building. The question I’d like to address in this post is: given inflation, how much should I have when I really need to retire (ya know, when I’m getting real old)? Trent Hamm from The Simple Dollar answers this question in this money post. I won’t repeat the thumbnail estimating method that he uses there, but I’ll convert it to a formula so I can easily apply it to my goal:
Total $ you need = 300 * (monthly $ in retirement) * (inflation ^ years to retirement)
So plugging the following into the equation:
- Having $5k every month (in today’s dollars) to spend when I’m retired
- Inflation of 5% per year
- 25 years to retirement
So we have the total $ I need, which is 300 * 5000 * (1.05 ^ 25), or roughly 5 million dollars. Hey! Sounds familiar! That’s what I’m gonna have in 10 years! 