Financial Tip #2: Know Your Magic Number

How much do you need in savings to sustain your retirement over your life time? First you need to determine how much income you need to pay your needs and wants. Your needs are your necessary expenses: utilities, car payments, insurance, taxes, etc. Now what do you want to do in this phase of your life: golf, travel, classes, dining, music lessons, boating, and so forth. I recommend coming up with a monthly figure, and make sure it is a net after tax amount. How long do you expect to live? Of course no one knows the answer to this but you do not want to outlive your money so at least plan for a long life expectancy.

A starting point is to take your desired monthly net income and multiply by twelve. You must consider inflation so take your annual total income and see what it will be in the year you plan to retire.  You can use an online inflation calculator. Next subtract out your estimated Social Security, which you can get off www.ssa.gov, and your estimated pension, if you are fortunate enough to be getting one. Now multiply this amount by your life expectancy. This will give you a rough idea of what your savings goal should be.

This is very rough because we are not considering what rate of return you expect to get on your investments as well as ongoing inflation in retirement. Now that you have an estimated goal how much do you need to save out of every paycheck to reach that goal. This is when it is best to work with a qualified financial advisor to not only help you plan, but to monitor the plan and track your progress.