Green Retirement Blog

Every retirement plan, is as unique as the individual, whose retirement is being planned. However, every retirement plan, should be able to answer the following 3 questions. And more importantly - answer them correctly.

When can I retire?

Traditional retirement planning answers when can I retire, by setting a savings goal, and using your savings rate to determine the date. So, if you need $2 million to retire, you have $1 million, save $25k a year, with an assumed rate of return on investments, you can retire in 6 years. So, wrong.

When you can retire, is determined by when your savings can pay for your spending in retirement, based on your retirement budget. So, if your retirement budget is $3,000 per month, you have $600k, you need $900k to pay for your retirement, you save 25k per year, you can retire in 3.5 years with compounding rates of return on your investments.

How much savings do I need for retirement?

How much savings you need for retirement depends on how much you spend in retirement. The current retirement industry approach calculates your required savings based on how much you earn. In reality your earnings, your salary, is the least relevant factor in retirement planning. It doesn’t matter how much you earn. Your salary doesn’t determine how much retirement savings you need. Your retirement spending determines your retirement savings.

How much can I spend in retirement?

How much you can spend in retirement, is based on how much you have saved for retirement, divided by an annual safe withdrawal rate of between 3% to 4.75% of your savings depending on your age at retirement. A better question to ask is “How much do I need to spend in retirement?” To answer this, you need to create a retirement budget first, then find out if you have more savings than you need or not enough.

If your retirement planner cannot answer those 3 retirement questions, then you are most probably being sold an investment, under the guise of retirement planning. And if your retirement planner is not answering the 3 retirement questions correctly, then you are receiving an inaccurate retirement plan, that will most probably end up costing you time and money.

Visit the Green Retirement Planning Website to learn more.