The problem really needs to be solved in reverse. How much do you intend to spend each month during your retirement years? How much do you have to have saved at the time of your retirement to do so? Then, how much do you need to save/invest each month during your working years in order to have that much money saved? Assumptions you'll need to make: How long will you live? o Actuarial tables suggest I'll only live for 9 more years after I plan on retiring (I'll use number of years rather than age, so I won't have to change it in the future) How much money do you intend to spend each month during retirement? My initial assumption is $10,000 per month (equivalent to about $8,000 in today's dollars. How much can you earn on your investments (after-tax) during your retirement years? o My assumption is 5% (APR compounded monthly - you may use a convenient compounding period). What do you expect inflation to be during your retirement years? o I'm going to use the recent (last 20 year) historical average of about 2.4% per year . With the above information you can calculate how much money you will need to have saved on the day of your retirement. How much do you currently have saved for retirement? o I'll assume about $1,000,000, but your assumption is likely to be zero. When do you intend to start saving for retirement? Obviously, my assumption is immediately, but yours may be years from now. How long do you intend to work or how long until you retire? o My assumption is in 12 years, but yours will be based on when you plan to retire, which will also affect how long you retirement period will be. What rate of return (after-tax) do you expect to earn on your investments during your working years? o My assumption is about 12%, which is close to the annual average rate of return on the S&P 500 and since these investment are in a tax-protected retirement account, the marginal tax rate is effectively zero. What do you expect inflation to be during your working years? o I'll continue to use 2.4% Based on YOUR assumptions made above, how much do you need to save each month for retirement? How much more per month do you need to save per month, if you start saving 5 years later than planned? The problem really needs to be solved in reverse. How much do you intend to spend each month during your retirement years? How much do you have to have saved at the time of your retirement to do so? Then, how much do you need to save/invest each month during your working years in order to have that much money saved? Assumptions you'll need to make: How long will you live? o Actuarial tables suggest I'll only live for 9 more years after I plan on retiring (I'll use number of years rather than age, so I won't have to change it in the future) How much money do you intend to spend each month during retirement? My initial assumption is $10,000 per month (equivalent to about $8,000 in today's dollars. How much can you earn on your investments (after-tax) during your retirement years? o My assumption is 5% (APR compounded monthly - you may use a convenient compounding period). What do you expect inflation to be during your retirement years? o I'm going to use the recent (last 20 year) historical average of about 2.4% per year . With the above information you can calculate how much money you will need to have saved on the day of your retirement. How much do you currently have saved for retirement? o I'll assume about $1,000,000, but your assumption is likely to be zero. When do you intend to start saving for retirement? Obviously, my assumption is immediately, but yours may be years from now. How long do you intend to work or how long until you retire? o My assumption is in 12 years, but yours will be based on when you plan to retire, which will also affect how long you retirement period will be. What rate of return (after-tax) do you expect to earn on your investments during your working years? o My assumption is about 12%, which is close to the annual average rate of return on the S&P 500 and since these investment are in a tax-protected retirement account, the marginal tax rate is effectively zero. What do you expect inflation to be during your working years? o I'll continue to use 2.4% Based on YOUR assumptions made above, how much do you need to save each month for retirement? How much more per month do you need to save per month, if you start saving 5 years later than planned
