Unlocking Success in Retirement: Understanding Critical Mathematics

Written by Jasper Smith

Retirement is approaching and I hope you might be planning accordingly. If you have not began the retirement planning process yet, today is an excellent day to start out. To assist you to live a cushty life in retirement, listed below are some numbers to maintain in mind: 80 and 219.

Let’s start with the 80% rule. Financial planners and advisors use this principle assist you to frame your conversation about retirement for his or her clients. Here’s an example of how it really works.

Let’s assume your current annual salary is $75,000. The rule of thumb is that you simply need $60,000 a yr (80% of $75,000) to live comfortably in retirement. That breaks all the way down to $5,000 a month. (Please note that these numbers don’t include taxes, so you possibly can find yourself with just below $5,000 per thirty days)

Now the query chances are you’ll be asking yourself is whether or not you possibly can live “comfortably” with this dollar amount. There are three possible answers:

1. 80% is number and I should have the ability to live comfortably.
2. 80% just isn’t enough, because I may have more to live comfortably.
3. 80% is simply too much and I should have the ability to live comfortably on less.

There is not any right or mistaken answer. The secret’s to find out what sort of lifestyle you would like in retirement. Your earnings will increase throughout your life and profession, so your goal may change.

Next is Rule 219. Rule 219 just isn’t widely discussed, but it surely helps answer one essential query. How much will food cost you in retirement? The rule assumes the next:

• You and your spouse/partner/companion are retiring at age 65 (two people)
• You each eat three meals a day at five dollars a meal.
• You’ve been doing this for (20) years.
• A yr has three hundred and sixty five days.

So if we do somewhat multiplication, 2 x 3 x 5 x 20 x 365 = $219,000. Of course, every meal you eat won’t cost five dollars, chances are you’ll not have a retired spouse, and chances are you’ll live longer than 20 years in retirement. This principle is predicated on many assumptions; nevertheless, this is simple to grasp – the choice is to find out your retirement number by calculating the time value of cash. This calculation requires just a few additional inputs, but it surely’s best to maintain things so simple as possible. The goal of this rule is simplicity. Also, in case you’ve never had a retirement goal, no less than set the bar at $219,000. This way you’ll have the ability to eat.

No one knows how much they are going to really need in retirement. But whether you utilize the 80% Rule or the Rule of 219, no less than it should assist you to start or re-evaluate and adjust your current retirement plans. Remember, retirement is approaching.

Jasper Smith is the founding father of the #BuildWealth® Movement. He has worked in the financial services industry for over 15 years and holds a life insurance license, multiple securities licenses and a Certified Retirement Counselor (CRC®) designation.