It’s always with a bit of trepidation that I put into the general world out there a bunch of specific numbers about how much it takes to retire. Others apparently are not (see, e.g., Lee Eisenberg’s The Number and its ilk, though, if memory serves, Eisenberg teases more than steps on The Number).
And you better believe I am trepidatious when I put a 7-figure number into the world, let alone one that is close enough to the middle of the 7-figure world to constitute mid-7-figures, as I did the other day in the piece entitled, The Simple Math: Hey, Baby Boomer, How Much Money Will You Need When You Retire?
Today, then, a more modest set of numbers await you.
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So let’s say that you are part of a couple and that your monthly nut — the amount you normally spend each month — is $7.5k. But let’s say also that $2.5k of that is for your mortgage, and that you’ll be done with that ball and chain (. . . Or is it? That’s a topic for another day . . . ) by the time you retire.
And let’s say that, like the couple in the example I used in the earlier piece, you will each have $2k coming to you from Social Security when you retire.
So now you are looking at a $5k cash-going-out number and a $4k cash-coming-in number.
Unlike the earlier hypothetical, we won’t dock you for income taxes on your social security because married couples currently pay no income tax on the first $32k of social security income they receive, and then . . . after that it gets complicated, but that other $16k you are making would also not be taxed.
And to keep things simple, let’s assume, as we did in the previous example, that your spending stays the same throughout your retirement. (Yes, by doing so we are skipping over all sorts of important stuff. But the goal here is simple.)
So now you have a $1k shortfall each month, or $12k per year.
And also as before, let’s say that your retirement will last for exactly 30 years, and that you are going to put your nest egg underneath your (inflation-tracking) mattress. So you need $360k to put into your mattress before you retire.
If you’re thirty years from retirement, then, you could do this by socking away $1k a month into that same mattress for the next thirty years. Or if you want to sock it away in something that beats inflation over the long-run, you would need to sock away some amount considerably less than that.
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Still too much?
Let’s say that everything is the same as above, but that you plan on living in a lower cost area when you retire, and that your monthly nut will be $3k. It could be Iowa (land of my college years and still quite inexpensive I suspect) or it could be Mexico or Costa Rica or Belize, or it could be right where you are, right here right now, where you are hopefully quite comfortable and happy, so long as you choose to live in a certain way — in a way that requires $3k of liquid oooooomph each month to make it work, and no more.
And with that lowered monthly nut — Voila!
You now have what many consider to be the ideal retirement, numbers-wise, in that you will be gaining wealth throughout your retirement, with each month $4k coming in and only $3k going out.
Chalk up another one to happy heirs.
But is it good to be gaining wealth in retirement?
That’s a topic for another day.