7 Moves to Make in 2024: #4 Calculate your Asset Needs

Nate Crosby |

7 Moves to Make in 2024: #4 Calculate your Asset Needs

“How much do I have to save to retire?” As you can imagine, that’s a question we get quite often. The answer is different for everyone. I have clients who never exit the accumulation stage of life. Every year they add more stocks, bonds, rental properties, businesses, whatever their accumulation strategy is. Some clients wish to retire early, before age 60. While that’s certainly possible it can be much tougher because those people may have to fund a retirement that lasts for more than 35 years. The CFP Board recommends the average worker who wants to retire save 11 to 15% of their income. For those who wish to retire before 60, the math doesn’t work out for someone working 30 years saving 11 to 15% of their income and being able to fund possibly 4 decades of retirement. Those with dreams of retiring before 60 need to accumulate more much faster than those retiring at 65 or later. This means their savings rate needs to be well above 15% of their income. But what about most folks?  

Most people seeking retirement do so between the ages of 62 and 70. Why? That’s the span of time in which those who qualify for Social Security can apply for benefits. The CFP Board recommends that those who seek to retire at a “normal” retirement age should have accumulated assets between 15 and 18 x their income needs. Where do they get that from?  

Most retirees need between 65 to 80% of their working income to make retirement work. When retired, people are no longer typically saving 15% into their accumulation plan. Perhaps their debts have been paid down, and maybe they are spoiling their grandkids rather than feeding, clothing, housing and educating their own children. 

For simple math, let’s assume Mark Doright needs $100,000 /year to support his lifestyle in retirement. Going by the higher limit of the CFP Board’s recommendations, Mark would want to accumulate $1.8 million dollars (18 x income). The old rule of thumb in the planning world is that one can safely withdraw 4% of their asset total per year, adjust it for inflation each year, and have a reasonable expectation to not outlive their money. This would provide Mark with 72% of his income needs, or $72,000. Didn’t Mark say he needed $100,000? We are not done yet.

If he paid into it, Mark likely is due a Social Security benefit. Mark’s Social Security benefit plus a 4% withdrawal from assets initially totaling 18x his income needs should get him to where he needs to be. Social Security typically gets a cost-of-living adjustment most years. This means that benefits are raised higher to account for inflation. Withdrawals from investment accounts can also take incremental increases, which is why it is imperative to start at a sustainable withdrawal rate. As long as a retiree stays within their budget and invests across a wide variety of quality asset classes (stocks, fixed income, real estate, gold, cash, etc.) they should enjoy a successful retirement.

If you need assistance calculating your accumulation goals, Crosby Advisory Group utilizes several strategies that you have access to at no added cost. Along with good old fashioned hand calculations, we have two of the leading financial planning software programs that our clients have access to. We love using the software because it is not a piece of paper stuffed in a drawer. Your plan is updated daily and can change as your life changes. Don't invest blindly. Have an idea of how much you'll need to accumulate to live a successful retirement.

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Disclaimer: Crosby Advisory Group, LLC provides financial planning, business growth strategies, and insurance protection. Crosby Advisory Group, LLC is a registered investment advisor. This newsletter is for informational purposes and does not represent direct planning advise. Investing involves risk including the potential loss of principal.