How Much Money Do You Need To Retire?

Money-Needed-To-RetireI was lucky enough to meet Todd Tresidder, author of the book How Much Money Do I Need To Retire, a few months ago a conference. I’m really glad I did, because he introduced me to his book exactly at the time I needed it. It helped me figure out what to consider when figuring out how much money I needed to retire.

I’ve been saving at a decent pace for retirement, but I had no clue if I was saving enough or how to plan how much I really needed to save for retirement. I had run some numbers based on the common retirement calculators you find around the internet, but I always felt they didn’t allow me to properly adjust the variables for the situations I wanted to test.

Even though I knew the retirement calculators I found on the web didn’t share the whole story, I was blown away by how much I was really missing when I read Todd’s book for the first time. Todd is a retired hedge fund manager and really knows his stuff. He could have written the book based on his personal knowledge, but instead he took the time to quote some amazing research that really drove his points home.

So what concepts did Todd open my eyes to? Here are just a few things you’ll learn in Todd’s book.

Order of Investment Returns Matter

Every retirement calculator I’ve ever used has you input a number for what you expect your investment returns will be. Some make it a bit more complicated and have a pre and post retirement investment returns number. The problem with these methodologies is, even though your investment returns may average out to that number over the long run, the order and timing of the returns matter much more.

This is especially true as you start drawing down on your retirement funds. If you have big losses as soon as you start withdrawing from your retirement portfolio, you may never recover. Todd does a great job of explaining this in his book and you could be shocked by the how important this concept is.

Two Key Numbers That Will Completely Change Your Retirement Planning

If you haven’t ever read about these two key numbers, then you might be surprised at the significance of them. The first number is percentage of income saved vs percentage of income spent. After a bit of thought, it makes sense that if you save more then you’ll spend less, assuming you don’t go into debt. However, this ratio is capable of determining how many years it will take you to be able to retire. Todd includes a chart in his book and the results could make you rethink your retirement planning.

The second number that will completely change your retirement planning is almost completely outside of your control. The second number is your return on investment minus the inflation rate. This is the real growth of your retirement assets. Inflation is completely out of your control so you’ll need to monitor and adjust for it as you get closer to retirement.

As far as investment return goes, you can invest in riskier or safer assets to change the magnitude of your investment returns, but it is highly unlikely you can actually earn a set investment return each year. These numbers, investment returns and inflation rates, have a huge effect on your retirement because of the effect of compounding. Todd does a great job of explaining this and its impact in his book.

These are just a couple of many things Todd will open your eyes to if you read his book, How Much Money Do I Need To Retire. If you want to pick up a copy, you can order it on Amazon as an eBook or a physical book. If you do buy his book through the links in this post, I will receive a small commission as I am an affiliate of Amazon.com.

Have you started planning for your retirement yet? What challenges have you run into so far?

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.

Comments

  1. For a couple of years before we retired we tracked our spending to see how much things actually cost. We made sure our mortgage was paid off and our son was out of college. After we retired, we downsized and took on a new mortgage that was extremely low due to nearly 80% down payment on new place, and we paid that off in less than 4 years. The thing people need to remember is if you can’t make ends meet when working, you sure can’t afford to retire!

  2. Good stuff here.

    What I got out of it is….control what you can’t (your savings rate and asset allocation) and don’t worry about what you can’t (returns).

    What conference did you meet him at?

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