June 2021

How Much Savings Do I Need For Retirement?

How much savings do I need to retire? Allow me to boil the ocean down for you… it depends. At what age would you like to retire? How long do you expect to live? How flexible are your spending needs? There are numerous factors to consider when calculating this elusive figure, and the fact is, we can only know the correct amount in hindsight. While everyone’s retirement savings target will differ, there is a simple question you can ask yourself to help you identify your “magic” number:

How much will I need to draw from my savings each year to maintain my desired standard of living?
If your answer is “I can cover all my desired living expenses with an inflation-adjusted pension,” congratulations: you can stop reading now. However, given the illiquid nature of pensions and annuities, it is important to maintain enough liquid capital to cover major expenses. For example, you cannot call the Social Security Administration to request a loan against future Social Security benefits to replace a roof or pay an unforeseen medical expense. Without ample liquidity, funding major unexpected expenses may require you to take on expensive consumer debt.

S. Tucker Childs, CFA®

Portfolio Manager & Financial Planner