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How We See It

Larry Quinn

Larry Quinn

July 6, 2012

Well, it depends...
By: Larry Quinn, CPA and Branch Manager

Don’t you hate to get that answer when you ask someone a question?  When you do hear it, you can be assured there is not a simple black and white response.

“Well, it depends…” is always the response to the question, “How much do I need to retire?”  There are two components in this particular question and both need exploring before an adequate response can be generated: 

  1. Cash flow - How much income is enough each year to live at the level you want to live in retirement? 
  2. Total assets required -  How much retirement savings are needed at the beginning of retirement to finance the level of retirement you desire?

Cash Flow

Everyone’s situation is different and as a result, there is not a single answer that satisfies each and every person’s unique requirements.  A great place to start is a financial inventory.  This simply means looking at your expense requirements by differentiating between your ‘needs’ (we must eat) and ‘wants’ (traveling will be fun and exciting).  The minimum annual income requirement will be the total annual amount calculated using the ‘needs’ identified previously.  Most likely the annual income requirement will be somewhat higher to enjoy the ‘wants’ identified too.

Now, the reliable sources of income for retirement must be identified.  Reliable sources could include items such as Social Security, a pension payment from an employer, employment earnings during retirement, etc.  By comparing the total reliable income with your annual income requirement you will determine if there is a gap.  Finally, do the expenses exceed the income creating a ‘negative gap.’  If this is the case, then the second component (total assets required) will need to be explored.

Total Assets Required

The ‘total assets required’ represents financial assets that are designated for funding your retirement.  If the assets are used to furnish only an income stream to make up the ‘negative gap’ identified above then the calculation is fairly straightforward.  However, when variables such as inflation, longevity (living longer), unexpected expenses (health problems, disability, long-term care needs, etc.), market risks and other items are considered then the calculation becomes more complex. 

There are many tools and resources available to help answer the ‘How much do I need to retire?’ question.  A lot of these are pretty basic and simple.  The more complex the circumstances then the results from such tools are less dependable.  Retirement planning contains many moving parts and complex issues that cannot be addressed by a simple mathematical model.

In order to get a more complete understanding of each unique situation posed by the question, ‘How much do I need to retire?’ one should seek out a trusted advisor to discuss the many variables requiring consideration.  TBT Financial Services advisors will work together with you to help address risks using a comprehensive process to plan your retirement.  After choosing a path to follow, the set of variables should be revisited with the advisor on a regular basis to allow for adjustments in the pursuit of a financially sound and rewarding retirement. 


Investing involves risk and you may incur a profit or loss regardless of
strategy selected.


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