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The Wealth Number Challenge: How Much Do You Need to Save for Retirement?

by Shawanda Greene

How We Prevent Wealth Pig

If you don’t know where you are going, any road will get you there. ~ Lewis Carroll

According to the 2011 Retirement Confidence Survey, fewer than half of U.S. workers have tried to calculate how much money they’ll need to retire.

Un . . . ac . . . cept . . . a . . . ble.

How do you achieve a goal when you don’t even know what that goal is?

Recently, Romeo Clayton, author of How We Prevent Wealthcreated the Wealth Number Challenge. It’s a call for savers to figure out the value of assets required to support their lifestyle in retirement. When you exit the workforce for the last time, you’re gonna want to have more than just contempt for loud music. You’ll want access to cash–loads of it.

Whether you truly love what you do for a living or despise every nanosecond of it, you should have an idea of what you’ll need socked away when you reach the end of your career.

Join me in the Wealth Number Challenge.

Plan A - Completely Retire at 65 Years Old

Budget

Before I run through the details, I aim for retirement savings of about 15% ($11,300) of a $75,000 annual income. But practicality has to guide  the process of finding my Wealth Number.

So? What to do?

Create a written, monthly budget, that’s what.

It’s the only way to get a clear view on whether I can even afford to contribute 15% toward retirement each year.

Plan A Monthly Budget

Assumptions

No one can predict with absolute certainty what’ll happen within the next 30 minutes, let alone 30 years. If you plan on working for the next few decades, get ready to start guessing.

That’s where the assumptions come in. I knoooow, it’s frustrating that such an important number is based off of events you can’t control. Get over it. Do the best you can with the information you got. You can always update the calculation once you’re privy to better data.

  • Annual Income: $75,000
  • Risk Tolerance: Moderate—Average Return (1970 – 2011) 9.6%
  • Social Security: $0
  • Yearly Solo 401(k) Contributions: $11,300 (Approximately 15% of income income)
  • Retirement Income: $157K ( 100% of $75K Adjusted for inflation)
  • Retirement Age: 65
  • Life Expectancy: 90
  • Annual Inflation Rate: 2.2%
  • Social Security Benefits: $0
Results
  • Wealth Number: $4,015,900
  • Amount Saved: $1,792,400
  • Shortfall/(Surplus): $2,223,500

Verdict

Yeah, so, uh, looks like I gotta do something to close the $2.2 million gap between what I’ll need and what I’ll have under Plan A. I can still retire at 65 while earning $75,000 a year IF I increase my yearly retirement contributions to $28,500. Let’s see how I’ll make it happen.

Sacrifices required

  • Eliminate entertainment budget
  • Dine out only once or twice a month
  • Refrain from having children
  • Trade iPhone for flip phone, give up data plan, switch to wireless provider Boost Mobile or Cricket
  • Forgo all travel
  • Consolidate shopping trips
  • Cancel gym membership
Here’s what my new budget would look like.
 Plan B Monthly Budget

Revised Verdict

NO!!!

I’ll give up travel, my gym membership, and even children, but cancel my data plan . . . ?

A girl has got to draw the line somewhere.

Plan B – Turn 65 Years Old, Then Work for Another Decade

Assumptions

Same as in Plan A except I don’t retire until I’m a grizzly, 75 years old.

Results

  • Wealth Number: $3,220,800
  • Amount Saved: $3,272,100
  • Shortfall/(Surplus): ($51,300)

Verdict

Although I enjoy what I’m doing now, I at least want the option of retiring at 65. I’ll look for another alternative.

Plan C – Snap My Fingers, Earn More Money, and Fully Retire at 65 Years Old

Assumptions

Same as in Plan A except my annual income is $100,000, and I put away $28,500 per year for retirement.

Results

  • Wealth Number: $4,015,900
  • Amount Saved: $4,022,800
  • Shortfall/(Surplus): ($6,900)

Verdict

Of the three, Plan C is the most desirable. Who wouldn’t want to make more money? However, I acknowledge that extra income requires extra effort on my part.

Other Items of Note

1. Don’t let the enormity of your Wealth Number prevent you from saving what you can. Remember, it’s okay to reach for the middle.

2. Although my calculations assume I won’t receive any Social Security benefits, I’ll likely receive something–even if it’s less than 100% of current estimates.

3. According to the SSA’s Actuarial Life Table, I’ll be good and dead before reaching 82 years of age–and I’m black too. Child, please. My Wealth Number is based off of a life expectancy of 90 years.

4. I used the Charles Schwab Retirement Savings Calculator to arrive at my Wealth Number. Additionally, I used the salary calculator at PaycheckCity to estimate my take-home pay under each plan. Ideally, you’d work with a competent financial advisor to help you come up with how much money you’ll need to retire.

Will you take the Wealth Number Challenge?

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{ 10 comments… read them below or add one }

Michelle July 9, 2012 at 2:42 PM

I need around $4.5 million in order to fully retire at around 55. But I don’t think I’ll ever fully retire. I’d like to have passive income as well and some small side job.
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Dominique Brown July 9, 2012 at 3:28 PM

We live on roughly 70k a year now. If we wanted to retire to day and live for 35 years we would need 1,306,522.926 in cash making 4%. When we officially retire we will only need 45k per year. Meaning we would need to retire with 839,907.5954 in cash to live on 45k for 35 years.

Hopefully, our lifestyle decrease instead of increases so we don’t have to redo these numbers. Adding more income will definitely speed this up.
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Lance@MoneyLife&More July 9, 2012 at 3:52 PM

I saw a similar post by financial samauri and really need to calculate this. Luckily I am saving a big chunk and 65 is around 40 years away for me
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MyMoneyDesign July 9, 2012 at 7:45 PM

Nice work – I do love posts where people run the numbers! I’ll take this challenge! My number is around $2M, but it changes all the time because I keep coming up with “fancy” systems for dipping into my nest egg.
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Charlotte @ Richly Reasonable July 9, 2012 at 10:54 PM

I think it’s awesome that you guys are already saving that much for your retirement in 30-40 years. It’s also smart to not plan on getting any Social Security money. I wish I had known all of this 30 years ago.
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Call Me What You Want Even Cheap July 10, 2012 at 7:43 AM

I like plan C as well and besides I am sure your income will go up between now and retirement, even though it will most likely take more effort.
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Romeo July 10, 2012 at 9:58 AM

Awesome post, Shawanda.

Thank you for taking the challenge. Most important, thank you for being so honest and transparent with your readers. It’s a real eye opener, right? I laughed my butt off at the “get a flip phone.”

You know as well as I, and have even pretty much concluded above, that it’s easy to cut expenses, but it leaves a lot to be desired. So the solution for us “young” people is to find a comfortable lifestyle, stick with it, and use all future incomes to save towards retirement, or to make more money from other endeavors.

As far as children goes…yeah…I have an entire post on my blog asking “why do we have children, is it the thing to do.” Spoiler: Cute and cuddly should not be the reason, especially knowing that they do cut into savings and income producing ability.

Again, thank you for this incredible write-up.

Oh, Plan D: Find a Sugga Daddy who allows you to move in with him while he pays all the bills and allows you to continue working on building your online business. ;-)
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Hannah July 11, 2012 at 2:34 PM

I like simple math so I did a super basic estimate of how much I should have saved.

I’m 28 next year.
I want to retire by age 62.
That means I have about 34 more working years.

If I have a life expectancy of say 85 (geez do I want to live that long), that means I’ll have to save money to support 23 years of retirement.

I can comfortably live on $50k a year in retirement. So sometime between now and when I turn 62, I need to have $1,150,000 saved somewhere.

I’ll get back to you guys in 34 years and let you know where I’m at :P

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Bluffguy October 15, 2012 at 5:26 PM

Get back to us in 56 years and let us know if you still feel the same way about living to 85 !

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Aloysa July 11, 2012 at 2:55 PM

Aaaahhh retirement… Well, if I am correct, we can live on 40K a year, retire at age 62 and we will need about 2M. The problem is that I am not even sure we can do it. :) Loved your calculations and assumption. I used pretty much something like this to estimate our number.
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