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May 15, 2008 8:31 am US/Pacific

Basic Formula For Retirement Planning

QUESTION:    Is there a formula or guidelines for how much money you will need to have saved for retirement?

ANSWER:  A very basic formula to determine how much money you will need in retiremnent is as follows: First, begin by taking the amount of annual income in today's dollars that you think you would need to live on if you were retiring today.  Second, grow that figure at 3% until the age at which you plan on retiring to account for inflation.  Once you have that figure, divide that number by .04 to .05   This will give you a range in values for the nest egg required to provide you with the income you desire.The divisors of 4% and 5% are approximations, and are subject to change depending on the age at which you retire. 
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Money Matters is provided by:

David Schauer, CFA, MSFA, CFP®
Financial Planner
Hanson McClain
E-mail questions to moneymatters@kovr.com

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