Lesson 2: How Much Do Your Goals Cost?

Let’s start diving into how much your goals cost.

We do this first, if you remember, because knowing how much your goals cost and what return you need will drive your investment decisions we’ll make later. For now, put away the Morningstar sheet we had you make on Friday. We’ll be coming back to that once we know the answer to our simple equation:

Savings Amount x Return = Goal

I want you to go to CanIRetireYet.com’s 3 Best Retirement Calculator Page.

I like this page because Darrow (the owner of Can I Retire Yet) has already done the work for you. He’s looked at all the calculators available and picked three. We’ll narrow it further:

Skip the Vanguard Nest Egg calculator unless you’re already drawing from your portfolio. It won’t be helpful. See? I just made your job even easier.

Use these calculators to determine how much you’ll need for your retirement goal.

To do this calculation, you’ll need to know a few things:

• Your age at retirement: You’re going to play with this value until you get an age that works….but start with your dream first and then work backward to your probable date.
• Life Expectancy: CFP Jason Hull shows his clients living to age 100. This is a good start. If you’re young, you may want to show yourself living even longer.
• Every X Years, decrease our income need by Y: This is to show you slowing down in retirement. I didn’t life to show my clients spending less money (as they spent less on fun, they were replacing it with health care concerns). However, you may feel differently.
• Inflation: I used 3%. I wouldn’t use higher than 4%.
• One Time Benefits: If you expect to have an inheritance or other lump sum of money that’ll apply to retirement, then fill in these numbers with the date it’ll happen and how much it’ll be.
• Post-Retirement Benefits: If you want to include Social Security, here’s where it goes, along with any pension you’ll receive. Don’t use a cost of living adjustment higher than 2%.

That’s it! You should be able to find out how you’re doing toward retirement. Next, we’ll discuss how to interpret your results and possible next moves.