How Much Do I Need to Retire? Or What’s MY Number Part 1
Who can tell me how much money I need to retire? The question everybody wants an answer to!
This post originally appeared on the website on July 1 as scheduled; however, email distribution was delayed until July 7, 2025. I'm sorry for this delay, and you will hear more about what happened in future posts. Thank you for your continued support of this blog, my site, and my recently published cookbook (available from the More tab). Please forward this and any post to people you believe could benefit or would enjoy reading this information. This post is especially important for anyone seeking financial independence, as it is the first of several posts to address this crucial topic directly.
Who can answer that question?
I read a lot. No, really, I mean a LOT. Financial newspapers, financial magazines, a TON of digital content, and books, primarily focused on self-improvement, news, business, and financial matters. I always have a book or two that are in some state of being read. I only watch a limited amount of television; a good portion of that is news or movies. A common theme in many of these mediums is that someone is always trying to separate you from the money you worked hard to get. It can be as egregious as a scammer or thief, an advertisement for some product of questionable value, or as subtle as an enticing clickbait asking, “How much money do you need to retire? Click here to find out” or “How much money should you have for your age? See how you compare.”
The lead-in to this post is actually two questions. The first is: Who can tell me how much money I need so that I can retire in the style I desire? The second question is how much money is that?
Every one of us wants a simple, obligation-free answer to these questions. The fact of the matter is that the answers are neither simple nor obligation-free. However, to somewhat satiate your appetite to know those answers, let me provide you with the following half-answers:
1. The best person to answer the question, “How much money do I need to retire?”…is you.
2. The answer to the question of “how much money do I need to retire?” is…It depends.
Now, I’m quite sure I just busted a few bubbles and disappointed a few people with those vague answers, and here’s the point. Depending on where you are on your financial journey, you may not have all the information or skills necessary to answer the questions. And that’s actually just fine, as many people do not. This is why I developed the course and Afterburner Success Partners. Many people will never get those answers, and these people are the people who concern me as a society as a whole. If you stick with me, you will get the answers. I would suggest the answers will come quicker if you either sign up for the course or read the book (due out in mid-2025). But staying with these posts will eventually get you there as well, just over a long period of time. In all cases, you will learn more than you know today and be better prepared to say, “I know my number, I know how to achieve it, and I’m on a path to financial freedom!”
The set up
When I worked at American Airlines, those of us in maintenance had a daily conference call with our associates from around the world. We called it the Out-of-Service call, or the OTS call for short. The purpose of the call was to assess the state of the operation at the beginning of the flying day. We would like to know what percentage of the aircraft were prepared to fly the assigned routes, and if any were not, what their status was to become so. We would discuss whether any of these out-of-service (OTS) aircraft required parts or technical support. We would talk about future maintenance needs so we could plan appropriately, and a host of other issues to ensure we supported our customers, the flying public.
Because we were a worldwide 24/7/365 operation, there was not really such a thing as the beginning of the flying day. The call began at 7:00 AM Central Time. It originated at our Maintenance Operations Center (MOC) in Tulsa (later moved to DFW and combined with the flight department and renamed Systems Operations Control (SOC). If you were in New York, Washington, or Miami, the call started at 8:00 AM. Los Angeles or San Francisco, 5:00 AM. London, 2:00 PM. Everyone had a part to play in the call, and each had to be prepared to report the status of their operation, regardless of their location. Just getting ready to report on the call took a lot of work, and as you can see, many people started their workday very early. Without pages of detail, I’m not sure I can adequately explain how complex that task was and how many people were devoted to the effort of just reporting the real-time status. It was amazing to watch and be a part of.
In the Air Force, we had a similar event, but because the operation was smaller, it was an in-person meeting rather than a conference call. When I was at Luke AFB in Phoenix, we would meet “up on the hill”, a reference to the slightly elevated location of the Maintenance Operations Center, which was the same name as American. By that time, I had advanced enough in rank to participate in the meeting, which took place at 8:00 AM. At the American and Air Force, there were other calls throughout the day, evening, and night to ensure that anything needed could be obtained to keep the aircraft flying as scheduled.
This concept I describe is not unique to the aircraft world. Retail managers will “walk the store”; manufacturing managers will “walk the factory floor.” Almost every successful business holds a status meeting of some sort to assess its current state and determine how to improve its operations. In very high performing companies, systems are in place to measure the status, efficiency, and any other critical measure they wish to in real time. It’s pretty much common knowledge that Amazon continually and closely tracks worker productivity, and any fast-food restaurant tracks the queue time for lines and the time from when an order is placed to when it is handed to the customer. Grocery and other big box stores measure how fast cashiers process a customer order at check-out. IT providers have standards for, and measure, to less than one second, downtime of their systems. Artificial intelligence (AI) is being used in efforts to improve all of these processes. There is an old saying, “What gets measured, gets done.” Ponder that thought for a moment and see if it may apply to your financial life, which is where I’m going with all of this discussion anyway.
Back in Tulsa, we would gather in the “War Room” 15 or 20 minutes before the call. We would greet each other, bid good morning, and joke around. I was fortunate to work with such a great bunch of folks, many of whom I am still friends with all these years later. One fellow, Jerry, our supply chain director, seemed to arrive just before the meeting after most others were assembled. Perhaps it was because he had to walk a very long way, most of it outside and exposed to the elements. When he arrived, someone would always say, “Good morning, Jerry, how are you today?” With a big smile on his well-tanned face, he would smile and say, “I’m living the dream!” You see, Jerry was a happy fellow, and he had a plan for his life; he enjoyed his job, enjoyed many interesting and pleasurable activities such as golf (hence, the great tan), and had a plan for his future, and was preparing to retire in Florida, which he eventually did. You see, Jerry had what we all want, didn’t he? It struck me at the time, and to this day, I can still see Jerry with a big, happy grin on his face. In fact, I even incorporated the theme of “living the dream” into the theme of Afterburner Success Partners: “Achieve your dreams, live your best life.” We all want to be like Jerry, don’t we?
Just like the business where we work, if the company is going to be successful, it must have a plan; it must take intentional action and measure the status regularly to ensure it is on track. That’s the lead-in and a parallel that allows us to begin to visualize and answer two of the most important questions of our financial lives. Indeed, as we’ve discussed, the consequences of financial insecurity are serious. Let’s get on with it!
How much do I need to retire, or what’s my number?
And so we begin the journey to answer these questions. As we do, we want to enjoy the ride and our life at the moment. We want to be able to stop and smell the roses. We want balance, security, and peace of mind. Many factors must be considered when determining when and how much money we need to retire, figuring out our number, and enjoying the ride along the way. We’ll discuss all of these topics over the subsequent sessions. For now, here are some basic considerations and common assumptions I believe to be important:
The common belief is that you need roughly 80-85% of your pre-retirement income once you retire. Why?
Assumes the same lifestyle as when you were working.
Assumes your home is paid off.
Assume you will make no more retirement contributions.
You will likely have increased medical costs. This could be from increased medical needs or the cost of insurance. Medical costs are a huge wildcard in retirement.
You likely will have increased leisure costs, at least initially.
You likely will experience a decrease in some other costs, such as commuting.
It also depends upon your sources of income and debt.
I’d like to see you with at least a three-legged income stool: Pension, SSA, 401K. Ideally, a four-legged stool with passive or other investment income, such as real estate.
Then the question is, what debt do you have at retirement? Ideally, you would have none, but increasingly, people have mortgages, credit cards, car payments, or even student loan debt.
If you are a dual-income family, it’s important to know what will happen when one of you passes and how it will affect the surviving partner (Note 1).
Taxes in retirement- This is a big unknown and can really hurt you.
What do you believe your taxes will be? People often assume they will be less, but that is not always true. If you find yourself widowed or otherwise single, you could be in for a big surprise when it comes to taxes.
A side note: Is there such a thing as zero taxes in retirement? I attended a seminar once that said there is. What the advisor was doing with all the near-retirement or retired attendees was advocating for converting all tax-deferred investments into future non-taxable Roth investments. I chose not to do this, and again, if you can plan early enough in your life, you can minimize taxes in retirement. Unfortunately, many people never think about this aspect of retirement or the impact of taxes on their financial security.
Well, that’s a pretty good setup for the coming discussions on what you need to determine your financial goals to secure your financial future, determine your number, and live your best life. That’s all for this week!
What’s in it for Me
A secure financial future is pretty much what everyone wants and we’re going to get you on the path. What a wonderful thing!
Call to Action
Securing your financial future is one of the most important decisions in your life, and we’ve started down that path. Review the discussions we’ve had over the past few weeks, couple that with what we’ve learned today, and begin to visualize what your financial future might look like. Don’t try to do too much or jump to conclusions, as we have a lot more to discuss in the coming weeks.
Recommended Resources
Purchase and read One Up On Wall Street by Peter Lynch. I think you know by now that I don’t typically believe in blazing new trails, especially regarding finances, and prefer to follow the masters who have already learned the lessons. Like Warren Buffet, Peter Lynch is one of the great ones in the financial world. While his book is getting a bit old now, the advice to learn about your investments and the market is still rock solid and a basis for securing your financial future. Never forget that others continually try to separate you from your money, and knowledge is the key to ensure that does not happen. Click on the link in Note 2 to get this great book for yourself.
Up Next
A few seconds can save your life.
Notes
Please note that as an Amazon Affiliate, I may earn a small commission on the sale of any of these recommended resources.
Many people are shocked to learn the answer to this question, and if it’s not addressed in advance, it could potentially negatively affect the lifestyle of the surviving partner, including being able to continue to live in the family home. This is a critical question to answer well in advance of that happening. I’m sad to report that I’ve seen this happen. Besides the grief of losing a lifelong partner, the compounded financial hit is just an overwhelming burden for many people. It’s critical to address this well in advance.
One Up On Wall Street by Peter Lynch: https://amzn.to/4k1nukP