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When most people think about retirement, they imagine a specific age such as 62, 65, or 67. The truth is that retirement is not about reaching a birthday. It is about reaching the right financial number.
That number is the amount of savings and investments you will need in order to confidently replace your paycheck and maintain the lifestyle you want. This is what we call your magic retirement number.
Many people assume that once they hit “retirement age” they can simply stop working. Unfortunately, if your finances are not where they need to be, leaving the workforce could cause more stress than freedom.
Retirement is not about when you stop working. It is about whether your money can keep working for you. That is where your retirement number comes in.
There is a simple formula that financial planners often use. Multiply your annual expenses by 25.
This calculation is based on the four percent rule. The rule suggests that you can safely withdraw four percent of your portfolio each year and maintain a strong chance of not running out of money.
For example, if your annual expenses are 60,000 dollars, you would multiply 60,000 by 25. That equals 1.5 million dollars. With 1.5 million invested, you could reasonably withdraw 60,000 per year for the rest of your life, adjusting for inflation as you go.
The 25x formula provides a useful starting point, but your exact number will depend on many factors that go beyond basic expenses.
The money you spend today will not have the same purchasing power in the future. Even modest inflation can make your current lifestyle far more expensive in retirement.
Medical needs often grow as we age. Medicare covers many things, but it does not cover everything. Prescriptions, out-of-pocket medical bills, and long-term care can significantly impact your retirement spending.
Do you plan to travel, buy a second home, or help your grandchildren with college? The lifestyle you want will shape your retirement number.
Many people will spend 25 to 30 years in retirement. Your savings may need to last decades, which increases the importance of careful planning.
Your number is also affected by any guaranteed income you expect to receive. Social Security, pensions, rental properties, or part-time work can all reduce the amount you need to withdraw from your portfolio.
Even if your retirement number feels intimidating, there is good news. The earlier you begin preparing, the more time you give your money to grow through the power of compounding.
Consider this comparison. Someone who starts saving 500 dollars per month at age 30 and earns an average return of 7 percent will have over 600,000 dollars by age 60. Someone who waits until age 40 to save that same amount at the same rate of return will only have about 300,000 dollars by age 60. The difference is dramatic, even though both saved the same monthly amount.
Time is one of your most valuable tools for building wealth.
You can begin estimating your number today by following a few clear steps.
First, track your current expenses and be honest about how much you really spend.
Second, add in the goals you have for retirement such as travel or helping family.
Third, adjust for inflation since your costs will rise over time.
Fourth, factor in your income sources such as Social Security or pensions.
Finally, take your adjusted annual expenses and multiply by 25 to find your estimated number.
This process gives you a clear starting point for planning.
Online calculators can provide ballpark figures, but retirement planning is deeply personal. Every individual has unique goals, risk tolerance, and circumstances.
A financial advisor can stress-test your retirement plan to make sure it can withstand market downturns. An advisor can also help you manage taxes efficiently in retirement, adjust your strategy when life changes, and provide peace of mind that your plan is built to last.
Retirement is not about age. It is about freedom. That freedom comes from knowing and achieving your magic retirement number.
The sooner you identify your number, the more time you will have to prepare and the more confident you will feel when the time comes to step away from work.
Do not simply hope that you will be ready. Take the time to calculate your number, build your plan, and retire on your terms.
Next Step: Meet with a financial advisor at Patria Wealth Group to calculate your exact retirement number, account for taxes and inflation, and build a strategy to get you there.
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