How much will I need and how much should I save for retirement?

Over the course of my career I would say one of the top ten questions I am asked, if not top five, is; how much do I need to save for retirement? Or phrased another way, what is my magic number? 

The answer to that question is; it depends.

Nobody likes hearing that answer but it is the truth.  Figuring out how much you will need at retirement is a complicated topic and unless we are sitting at a table together I don’t think I can give you a precise number.  But what I hope to accomplish in this guide is get you a number that is probably within the range of what you could need when you retire.  The numbers you are about to see might concern you…retirement is not cheap.  But with a good strategy and the determination to get there you can succeed.

We utilize a 4-Step process for retirement preparation that helps simplify your financial situation down to some basic information.  As I mentioned before, this isn’t going to be an exact number but should be in the ballpark.  As you get closer to retirement you will then be able to fine tune your strategy because you will hopefully have a better idea of what you want to do in retirement, where you plan to live and what your expenses are.  My 4-Step process is this:

  1. How much money will I need to have set aside at retirement that I can then turn into an income stream for retirement?
  2. How much money do I need to save each month to get to that nest egg?
  3. What financial vehicles could I use to work on building that nest egg in a tax-efficient way?
  4. What tactics/investments fit my risk tolerance and time horizon to help me meet my retirement goals?

If you have access to a financial calculator you will be able to get a more precise number for your situation. You will see some charts in the following articles that might get you close to your number but using a financial calculator or an online calculator is going give you a more tailored number for your situation.

Ready to begin?  If yes, please proceed to 

2107619 / DOFU 5-2018

Step 1 – How much money will I need in retirement?

How much money will I need to have set aside at retirement that I can then turn into an income stream for my retirement?

Our first step is determining how much money you will need to have sitting there at retirement, which you can then turn into an income stream for retirement so you hopefully never have to go back to work.  You will be paying yourself not to work!  How great is that?

The chart you will see below is an excel program I created so we could quickly come up with an approximate number using just your current income, years until retirement, what we assume the inflation rate will average per year and how much of your current income you think you will need to replace at retirement.  Many financial and economic experts recommend around 80% of your pre-retirement income should be replaced in retirement.  I will caution you though; I have worked with many people who spent MORE in retirement and many who have spent a lot less.  Use this as a general guide to get you started.

Also, if your income is going to most likely change significantly over time, you will want to account for that as well.  Hypothetically speaking, if you are a medical resident earning $50,000 a year but will be making $350,000 a year in private practice, you will want to use the $350,000 number as that will be the lifestyle you will be accustomed to.  This holds true for any profession where your income will most likely change considerably as time goes on.


“If you want to have a better performance than the crowd, you must do things differently from the crowd.”  –  Sir John Templeton


The way you read this chart is left to right.  Pick a number in the first column that is close to your current income or the income you feel you will most likely be at fairly soon.  In my chart I picked 30 years until retirement and used the long-term historical average for inflation as my theoretical assumption.  I also used a 75% income replacement rate for when you retire.  So if you are making $40,000 a year and have about 30 years until retirement then you will need about $1,456,000 sitting there at retirement.

Assumptions: This final sum of money is expected to produce an income stream for at
least 20 years if you withdrew exactly 5% and took no risk with the funds.  If you put the money in an interest bearing account, it could last longer.  If you choose to
invest it in variable, market based, investments it could last a lot longer or not as
long, depending on market performance.  Each person would want to analyze independentlywhat would be best for them and their assumed life expectancy.

Retirement Next Egg Chart

This hypothetical example is for illustrative purposes only. Not based on any particular investment. Investments will fluctuate and when redeemed, may be worth more or less than originally invested. Figures do not include transaction costs, taxes, or expenses.

If you are making $240,000 a year and have about 30 years until retirement you will need about $8,738,000.  The numbers look so big because the rising costs of goods and services over 30 years will be significant if we average 3% inflation.  Just ask your parents what they paid for their first home or first car and you will quickly realize what affect time has on money.

If you want a custom one for you please feel free to email me at and I can send you one right away.  Just let me know the income you want me to use, how long until you retire, and the inflation and replacement rates you are comfortable using.

After the foregoing, let me hopefully give you some good news.  If you are participating in a 401k or 403b, hopefully your employer provides a match on the dollars you put in.  Even if it’s 1%, every little bit helps you in pursuit of your number.  Also, you may have an employer pension that could contribute to your retirement income in the future, that will help as well.  For those who feel social security will provide something at retirement, you could factor that in as well.  So the number might not be as daunting as you think.


For Step 2, please see the next post…Step 2 – Monthly Savings to Reach Retirement Goals

2107619 / DOFU 5-2018

Step 2 – Monthly Savings to Reach Retirement Goals

How much money do I need to save each month to reach that nest egg?

             I decided to stick to a 30 year time horizon and include the chart from my excel program that shows how much a person needs to save each month.  You will notice the bottom line is for those who already have savings set aside that we should account for.

Same thing as before, read the chart left to right.  First we look at how much monthly savings is available.  Then we look at how many years we have to save that money.  Lastly, we hope for some sort of rate of return on those savings. You will notice I picked a hypothetical 8% per year as the assumed rate of return over a 30 year period. Keep in mind that past performance is not indicative of future results.  Rates of return will fluctuate and your accumulation value may be higher or lower than those shown below.

How much do I need to save Chart

This is a hypothetical example for illustrative purposes only.  It is not indicative of any particular investment or guarantee of future performance.
These values assume that the currently assumed hypothetical elements will continue unchanged for all years shown. This is not likely to occur and actual results may be more or less favorable than those shown.  It does not take into account the reduction of potential fees and expenses.  If it did, results would be lower than those shown.

Hypothetically speaking, say you determined you needed about $2,000,000 to retire in 30 years.  If you look at the right side of the chart, find roughly where $2,000,000 is and then go back to the left side to see how much savings needs to be invested each month you will see its between $1250 and $1500 a month.  Keep in mind, if you do have an employer match, pension or feel you can count on social security, than that should be factored in.  Ignoring pensions and social security, you might have an employer that matches 50 cents on every dollar you put in your 401k.  So if you put in $1000 a month they would put in $500 a month.  If you are fortunate enough to have an employer with that generous of a 401k match then you have to come up with $1000 a month to put in and they will take care of the $500 and that alone will help get you on your way to your retirement goal in this example.

One nice benefit to using this step by step process is you already accounted for inflation in Step 1.  We decided on a hypothetical inflation rate and used that in our calculations to determine the total amount of money needed at retirement.  So the total sum of money we came up with had an assumed inflation rate factored in.  That helps us because when we go to the next chart, we only have to find the amount needed to save each month to get to that end result vs. having to find a dollar amount but then increase it each year by an assumed inflation rate.  So that means, in the above hypothetical example, you only need to save $1000 a month and not increase it later on as you get raises, promotions, bonuses, etc.  Some retirement plans have you increasing as time goes on and hopes those pay raises, bonuses, etc. come into play.  I like to start with saving exactly what needs to be saved (of course only if it’s possible and won’t leave you starving at the end of the day) and as you do get pay raises you can have fun with that extra income vs. having to save more and more as time goes on.

Lastly, the assumptions we used could be low or high, so this strategy does call for some flexibility as time goes on, but if our assumptions are pretty close, you may not have to change things too much as the years roll on by.

For Step 3, look for my next post…Step 3 – Where should I save for retirement?

2107619 / DOFU 5-2018

Step 3 – Where should I save for retirement?

What financial vehicles could I use to work on building that nest egg in a tax-efficient way?

The federal government and IRS have given us a variety of places that we can save and invest and gain some tax advantages.  The biggest tax advantage is the ability to let our funds grow each year without having to pay taxes on the growth.  We call this compound interest and it’s very, very powerful.  Let’s take a look at some vehicles we can use that offer compound interest.

  • Traditional IRA
  • Roth IRA
  • 401(k)
  • 403(b)
  • Variable Annuity
  • Fixed Annuity
  • Thrift Savings Plan (TSP)
  • 457 plan
  • Cash Value Life Insurance

Each of the above mentioned tax-advantaged vehicles has pro’s and con’s.  They each have different features, restrictions and benefits as well.  An investor may have money in one or several of these tax-shelters.  Some of these aren’t available to all investors and each has varying costs and expenses.  But overall, these vehicles are where the majority of Americans are accumulating their retirement dollars.

Please keep in mind that investments will fluctuate and may be worth more or less than originally invested.

For the 4th and final step, look for my next post – Step 4 – Meeting my retirement goals

2107619 / DOFU 5-2018

Step 4 – Meeting my retirement goals

What tactics/investment vehicles may fit my risk tolerance and time horizon to help me meet my retirement goals?

There are a whole host of investments you can put your money in these days.  Some are products issued by investment firms, insurance companies, banks and federal/state/local governments.

  • CD’s
  • Bonds (Municipal, Treasury, Corporate, International)
  • Exchange Traded Funds (ETF’s)
  • Index Funds
  • Actively Managed Mutual Funds
  • Individual Stocks
  • Real Estate Investment Trusts (REITs)
  • Private Equity
  • Hedge Funds
  • Precious Metals

This list does not contain every investment out there, but these are the most common ones used.  Each has varying fees and expenses as well as advantages and disadvantages.  The important thing to know is which investments are going to be suitable for your risk tolerance and time horizon.  Also, this list isn’t meant to say that you pick just one and go with that.  The list is merely to show you what are some of the more common choices out there and you may find that several are a good fit for your portfolio and offer the diversification and return potential you need or desire.

Neither diversification nor asset allocation guarantee against loss, they are methods used to manage risk

“Look at market fluctuations as your friend rather than your enemy.  Profit from folly rather than participate in it.”  – Warren Buffet


I sincerely hope this series of articles was enjoyable and educational for you and I would love your feedback.  If you have any suggestions for improvement, or words of encouragement, please reach out to me at

My hope is that the time you spent reading this was of value to you.  The goal was to provide you something to get you started on the retirement savings path or provide a check-up to see what you current financial strategy is doing and if you are on track to your retirement goals.  Hopefully you now have a good idea of what tools and strategies are available to possibly benefit your retirement, how much you may need to save, and some information about financial vehicles and investments that may work with your situation while also taking into account tax-sensitivities.

If you feel my firm can be of help on your journey, please call 763-428-0066 x3 or email to setup a No-Cost, No-Obligation, 25 minute phone call.

An even easier way to book your call is by clicking on the Click to Schedule button under my picture at the top of the page.

To Smarter Investing,

Lawrence B. Tate, ChFC

Financial Advisor

2107619 / DOFU 5-2018

Which pension option should I choose when I retire?

This question is a big deal!  Why?  Because the vast, vast majority of the time, your decision is irreversible.  You can’t change your mind later.

Always, always, get as much detail as you can from your Human Resource department or whoever handles your pension benefit options.  There, often times, many options to pick from and the whole situation can get confusing real fast.  Also, HR folks are not supposed to give advice. They can tell you your options but not which option is appropriate for you.  This is for good reason, given that they don’t know your whole situation and therefore cannot provide sound advice.

Please, please, please sit down with a trusted advisor, one you have known for years or one you can pay hourly to help you make an informed decision.  It will require some time together and you should disclose your financial situation and most importantly your future life goals.  That will enable your advisor to give you a recommendation that takes into account your entire situation.

I believe that the most critical variable for most when choosing which pension option to go with is the amount of survivor benefit you wish to leave behind for a spouse.  I have seen plans that allow you to leave up to 100% of your pension benefit behind, to as low as 1%.  What this means in practical terms is – say as a hypothetical example for illustrative purposes-  your employer says you are eligible for $4,000 a month of pension benefit for as long as you are alive.  If you pass away, the survivor benefit you leave your spouse could be as much as $4,000 or you could choose to leave $0 behind, the choice is yours and in a lot of states, your spouse as well.  Nothing is free in this world, regardless of what politicians tell us J, so you will also be presented with the costs to leave money behind.

In my above example, say you are eligible for $4000 a month of retirement benefit.  You might then be told that to leave $4000 behind to your spouse should you die first, then you will actually get $3600 a month of benefit, so the cost to leave behind $4000 is $400 a month.  Or you may say your spouse only needs $2000 a month should you die.  The cost then might be $200 a month, therefore your retirement benefit would be $3800.  These are just two examples, of the myriad of options that may be presented to you through your plan.

The reason I say you would meet with an advisor and disclose your whole financial situation is you may have existing financial products or accounts that can be used in concert with whatever pension payout you choose, for your retirement income needs. I have seen this many times, old financial strategies that may just need a second look with an eye to your current needs and situation.

In conclusion, if you are eligible for a pension from your current or past employer, first and foremost consider yourself lucky (these are disappearing rapidly in the modern economy), secondly you may benefit from a Pension Analysis to see if you can possibly help maximize them. Pensions are a great retirement tool, however; very few who receive this income stream really know how it works and give much thought to the irrevocable decision they are about to make. If you have a pension plan as a piece of your retirement, consider seeking assistance from a retirement income specialist who understands the structure and what options are available to maximize your income and leave the most behind for your spouse, beneficiary’s or estate.

As always, please email me at anytime if you think I can be of help.

2011369/DOFU 1-2018

Should we pay off our house?

Many people ask me this question as they approach retirement or shortly after they retire.  At the risk of being coy I have to answer; it depends.

For most people, having their home paid off is a wonderful thing.  They are less stressed, feel great about paying off the largest purchase of their lifetime and it provides a freedom in their cash flow they have never had.

For some, the tax bill that would befall them makes the question a bit tougher.  Not all people have enough sitting in savings, checking or non-IRA accounts to pay off their mortgage.  Sometimes, the bulk of their retirement savings is sitting in an IRA, which if withdrawn would be taxable at ordinary income rates.  At this point I recommend they chat with their accountant to see how much in taxes they would owe on such a withdrawal and then run some math to see how much it would “cost” to pay off the mortgage in one big swoop.  Often times, the accountant will crunch the numbers and recommend a slower withdrawal strategy out of the IRA, to keep the taxes low, and have the house paid off in 5 years, for example, instead of in 1 year.  Finding the right strategy for your particular situation requires sitting down with a trusted advisor and an accountant to “do the math” and see what might make most sense for your situation.

Some have argued it’s better to keep the money invested in the market as the long term average returns have outpaced today’s mortgage rates.  Using historical returns as our guide this is often true, but in retirement there is more to a person’s retirement strategy then just numbers.  I have found most would feel a lot better with the house paid off and most often that is what I recommend doing – in the confines of the most beneficial strategy your trusted advisor and accountant come up with.  If the money is just sitting in cash, then most can skip those meetings and just pay off the debt.  But if your money is in an IRA or another vehicle that would subject you to potentially large taxes, but meet with some experts and devise the best strategy for your situation.

If I can provide any further help or guidance please don’t hesitate to email me at

This should not be considered mortgage advice. Please consult a mortgage professional for advice regarding your specific situation.

2011364/DOFU 1-2018

How do I know if my money will last when I retire?

This is one of the most important questions, if not THE most important, that retirees need to ask themselves before taking the plunge.  If one leaves the workforce completely the paychecks stop and they are left to rely on their savings, social security and possibly a pension.  Those without a pension need to be even more careful, especially if they want or intend to spend more each month than social security provides.  This spending can only come from one place, their savings.

Figuring out how long your money will last in retirement has stumped many.  There are a lot of assumptions and variables that could go in that calculation.  The first being, how long will you live?  Nobody knows that answer…so that’s our first assumption.  You could work off of statistics, off of family health history, neither or both.  For most married couples, I recommend assuming at least one person will make it to 95.  Modern medicine is amazing.  Some people live longer than they thought, and are more active at later ages than they ever thought they would be.  So choose this number wisely, and to be safe, maybe add 5 years to your guess.

The next big question is what will stuff cost 5, 10, 20, 30 years from now.  30 years ago the cost of a new car averaged $6,294 and today they average $26,700.  A gallon of milk was $1.94 and now the average is $3.52*.  Many people forget to account for the rising cost of goods and services.

Many economists say you should consider having to take out an additional 3% to 4% per year.  So, for example, if you pull out $1,000 a month from your savings this year, plan to take out $1,030 or $1,040 a month next year.  Then 3% or 4% of that amount the next year…and on and on you go.

Lastly, you need to determine a “safe” withdrawal rate.  This is how much you can spend each year from your savings and not run out of money.  This can vary a lot from family to family so please be careful on this step.

Please don’t take this process lightly and by all means, consult with a professional if you feel you can’t do an unbiased assessment yourself.


2011359 /DOFU 1-2018

How Important Is a Financial Plan?

This question has come my way many, many times over the last 15+ years.  And I am glad it has.  It’s a great question and it opens the door to fabulous conversations.

In my humble opinion, a fee-based financial plan is extremely important.  It acts as a blueprint to get you moving towards your financial goals.  Would you try and build a house without a blueprint?  You could try, and possibly succeed, but I highly doubt the end result would be as you initially dreamed up and I would imagine it would take a heck of a lot longer to finish that house and at a much higher cost.  And let’s not forget about the added stress…doesn’t seem worth it to me.  Would you ever head out on a two week road trip across the country to Florida or California without some sort of map, directions or way to guide you on your journey?  Of course not!  So why approach your financial life any different?

Whether you are dreaming about paying for your children’s college or putting together your goals, hopes and dreams for retirement, a financial plan will serve as the blueprint for working towards achieving those things.

A financial plan is not a static document that gets put together, and then sits on a shelf somewhere or in a computer file.  No, this plan should be reviewed annually.  Things change, life happens and you need your plan to change with you.

Already retired?  A plan is just as important for you as it is for those saving for retirement.  You need a plan to help ensure your income lasts as long as you do.

Separate from the financial plan and our role as financial planner, we may recommend the purchase of specific investment or insurance products or accounts.  These product recommendations are not part of the financial plan and you are under no obligation to follow them. 2011277/DOFU 1-2018

So What Goes into a Comprehensive Financial Strategy?

So What Goes into a Comprehensive Financial Strategy?

First, identify your goals.  They might look like the following, for example:

  • Pay for 50% to 100% of each child’s college costs
  • Retire at 65 or 68
  • Be able to pay cash for a new car, approximately $30,000, every 6 years
  • Have the option of getting away for a few months every winter, when retired
  • Save up a 20% down payment for next house
  • Balance our spending with our saving and charitable goals
  • Pay off all debt in 7 years
  • Ensure that in the event of my death or disability my family can maintain the same lifestyle that it is used to

The list could be endless.  If you can dream it, put it down.  You then work on prioritizing and running a financial analysis for the various goals you have rated a top priority.

For most people I work with, retirement is the largest – in terms of dollars that will need to be saved – future financial goal they have.  Retirement is most certainly a journey.  And with today’s rising life expectancies (people are living much longer than most ever thought) the journey could be a long one…hopefully a long, FUN journey.  With that being said, I think it’s extremely important to invest a handful of hours up front and a couple every 1-3 years, making sure you are making progress towards this goal.  Your strategy should address things like longevity (how long you might live), as well as the rising costs of things like food, utilities and medical care.  How much risk can you tolerate taking with your investments?  Your strategy will require some assumptions like rate of return, taxes and future income needs.  These things should be looked at and updated and changed if need be.

2011290/DOFU 1-2018