How Much Do I Really Need to Retire?

by Andy Hough on February 2, 2012

Retirement. Spending time with your family. Travel. Doing what you want to do, when you want to do it.

It’s a wonderful pipe dream that practically anyone over 50 indulges in now and then. (Or even younger.) But in addition to all the uncertainty about Social Security, there’s more to consider, including rising Medicare costs, housing, assisted living and so on. Eventually the question rises:

How much do I really need to save, in order to retire?

And the flip side to that: What if I haven’t managed to do it?

One of the most negatively inspiring books on the subject is Lee Eisenberg’s The Number. (Subtitle: “We’re All Screwed.”) According to Eisenberg, people who invested watched their money swirl down the 2006-2008 stock market crash toilet; those who spent it, instead, just went broke that much faster. To make things worse, people who “downshifted” didn’t always consider that they would not only be living longer, they’d be doing it with uncertain medical plans, and more needs for regular care.

Through the gloom, though, a few lessons emerge:

*You don’t always need a bazillion dollars to retire, no matter what the formulas say. (You might lose it, anyways, the way today’s economy is going.)

*Saving regularly may not protect you — but it does help during emergencies. And the needed money will be there if you run into a sudden, can’t-be-missed opportunity.

*Interest may not be high right now — but neither is inflation. (Or so Eisenberg says. Seeing the jump in food prices over the past year or so, I’d disagree.)

*Plan on working longer. A part-time or consulting job will fill in gaps nicely. (Just don’t rely on it to be there forever — your health or other circumstances may not allow it.)

*Live frugally. It will help your money stretch that much further.

*Keep yourself open to opportunities. (As Katie Couric points out, “Sometimes hard work and good timing intersect. Sometimes they don’t. But they likely will at some point, and when they do…you’ll be ready.” (The Best Advice I Ever Got.)

So is there any formula for knowing how much money you’ll need in retirement? According to Eisenberg, it’s 4% yearly of the principal amount in your investments– based on a 1994 calculation by Bill Bengen, a financial planner who spent hundreds of hours analyzing a hypothetical “sample portfolio’s real return based on historical performance.” (This figure does not include Social Security, pensions, part-time jobs or other income sources.)

Even just before the stock market debacle, financial advisors used to recommend 7, 8, even 9 or 10 percent…which many retirees “spent accordingly. But — oops! — the financial advisers and magazine had overlooked the you-would-think-it-was-obvious fact that stock market returns through that era were unusually robust.”

The final lesson is clear: the Number is just that…a number. “Either way,” Eisenberg says, “getting incensed over who has what strikes me as a waste of psychic energy and a waste of time. Better to invest this valuable energy, and use that time, to come to terms with who you are, or, if it better pleases you, to make more money.” Better get started right away.

This post is by Staff Writer Cindy Brick. You can read more of her writing at or her personal blog.


Money Tips February 3, 2012 at 8:05 pm

Great post Andy. You have made very good points. I especially like this, “You don’t always need a bazillion dollars to retire, no matter what the formulas say”.

Your article is positive and inspiring. Keep up the good job.

Kurt February 6, 2012 at 2:07 pm

I tend to resist all ‘one-size-fits-all’ guide or rule. I think the best way to get a real grip on how much one needs to save is to do the hard work of planning. Where will you live? Will you continue with paid employment, at least part-time? Do you expect any inheritances? Will you have to buy private-sector health insurance? How large a house and how many vehicles will you need in retirement? Etc. Individual situations vary so widely, any rules regarding ‘the number’ must necessarily be only very rough guides.

MyMoneyDesign February 7, 2012 at 6:41 am

Thanks for the book review. I am always looking for a good read. The Great Recession certainly has shaken up ever aspect of traditional financial planning. A lot of the books I have read have suggested taking very defensive measures such as becoming more vested in bonds. Although bonds don’t have quite the return of stocks, their fluctuation and potential for dropping in value is much lower and they may provide some type of a hedge against situations like the Recession we just experienced.

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