3 Ways to Calculate Your Retirement Number

Quick Look

  • In the notes for this task, write down all three of target retirement nest egg numbers based on the methods you previously read about here. This includes:
    • 4% Withdrawal Rule
    • Income Multiplier Method
    • Annual Spending Method
  • Then, add up all three numbers and divide by 3 to get your average number. Write that number down too.
  • The MoneySwell Retirement Planner is another easy option that will provide you with a range of estimated needs. It uses a mix of the three methods listed above.


Why Calculate Your Retirement Number

Calculating your retirement number can be a daunting task. Not because it’s technically difficult – particularly if you use the MoneySwell Retirement Planner – but because it lays bare the financial mountain you have to climb. In fact, the exercise can be so intimidating that many people never bother to do it until they’ve nearly reached retirement. But whether retirement is 40 days away, or 40 years, calculating your number is incredibly important.

By understanding your target retirement number(s), you can start to formulate a plan for how you can achieve those goals through your retirement funding (which you’ll do in the “Fund” tasks, later).

Don’t forget: If you’re still two or three or four decades away from retirement, you have time to make incredible progress toward your goal. And if calculating your number encourages you to take concrete steps to make any progress, well done! After all, 60% of the “impossible” is better than 100% of the easily achievable. Make the most of the time you have available to you.

And, if you’re closer to retirement, there’s no better time than today to understand where you are, what a reasonable goal is, and create a plan with the resources you’re likely to have. No matter your situation, we can promise you that many have lived fulfilling retirement years with less than you – but it sure helps to know where you are and have a plan in place!

So be brave! Calculate your numbers using the examples from below (and refresh your memory using the “How to Apply It” details for each method here), and make progress toward your goals!

3 Retirement Number Calculation Examples

  • 4% Withdrawal Rule Example: John needs his retirement portfolio to generate $65k in income annually. So he takes $65,000 / .04 = $1,625,000 nest egg number.
  • Income Multiplier Method Example: Jane is 35, and currently makes $75,000. But she expects to be making the equivalent of $125,000 by the time she retires. She takes $125,000 (final income) x 13 (multiplier) = $1,625,000 nest egg number. (Remember a reasonable income multiplier is between 10 – 17.)

  • Annual Spending Method Example: John and Jane would like to spend $115,000 a year. They have $12,000 a year in reliable passive income. Based on a variety of factors like wanting to be very financially secure and spend relatively carefree in retirement,  a spending multiplier of 30 feels right for them (some will use spending multipliers as low as 25). ($115,000 (desired total annual spending) – $12,000 (reliable passive rental income)) = $103,000 x 30 (multiplier) = $3,090,000 nest egg number.

If you’ve completed this step, well done! Most people never do this so you’re ahead of the game!

Share this content!

MoneySwell’s content and action plans are designed for educational purposes only. Please read our Terms of Service for more information.