Green Retirement

Planning your own retirement is easy, really it is, Wall Street makes it complicated and confusing on purpose.  All you need to plan your own retirement is 3 pieces of paper, a pencil, and a calculator.  Why pay a financial planner a lot of money, receive a worthless guess, when you can plan your own retirement for free!

This free retirement planning guide uses the Green Retirement Planning formula and method, a much more accurate method for calculating retirement savings needs, than is used by traditional retirement planners.  To illustrate how to plan your own retirement, I will be using screen shots of Green Retirement Planning Software, our affordable retirement software that makes retirement planning even easier.   Let’s get started…

Their are four things you need to know to properly calculate your retirement:

Your Age
Your Net Worth
Your Retirement Budget
Your Retirement Income (Social Security and Pensions)

Your Age at retirement determines how much you can safely withdraw from your savings.  Your retirement income, if you are currently receiving or are eligible, enables you to retire with a lower net worth.  We will use both of these numbers, when it comes time to calculate your retirement, but first it’s time use the first piece of paper to determine your net worth.

Step 1.  Net Worth

Your net worth determines how much you can spend in retirement.  On your first piece of paper list all of your assets and debts.  Assest - Debts = Your Net Worth.  List all of your assets, not just your retirement investments, everything including the value of your cars, couches, and collectibles.

Step 2.  Retirement Budget

Your retirement budget is the key to accurately calculating your retirement savings needs.  How much you spend in retirement determines how much savings you need for retirement.  The less you spend in retirement the less savings you need for retirement.  Your retirement budget gives you control over your retirement, traditional retirement planning uses your salary to calculate retirement, your salary is irrelevant.

Creating a retirement budget is not that difficult, the simplest method is to create a current budget listing all your current monthly expenses, and then create your retirement budget.

Draw a line through the middle of your second piece of paper, on one half write “Current Budget”, and on the other half write “Retirement Budget”.  First list all of your current monthly expenses, and then list all of your expenses in retirement,  removing and reducing your expenses in retirement.

For instance, retiring with one car instead of two, could reduce your retirement savings needs by up to $180,000.  If you also reduce your housing budget by $500 per month, combined the with savings from retiring with one car, you could retire with over $300,000 less in savings.  It also reduces the number of years you will work until retirement.  How many years will it take you to save an additional $300,000?

Step 3.   Calculate Your Retirement

With your net worth and retirement budget figures, using the Green Retirement Formula, calculating your retirement is a snap.  The Green Retirement formula is detailed below, or you can use our Free Retirement Calculators on our website, to do the math for you.

Net Worth = (Retirement Budget  - Retirement Income) / SWP

Terms:
SWP is your Safe Withdrawal Percentage, the percentage of your net worth you can spend each year in retirement, without worrying about running out of money during retirement.  The younger you retire, the lower the percentage, the older you are at retirement the higher the percentage.  Use the SWP from the list below that corresponds with the age at which you plan to retire.

Age 30 - 3%
Age 40 - 3.75%
Age 50 - 4%
Age 60 - 4.75%

Retirement Income is the amount of money you receive, or are eligible to receive, from Social Security and Pensions.  And it can make a big difference in the amount of savings you need to retire.  If you are eligible to receive $1,000 per month from Social Security, the income is the equivalent of a $250,000 investment, reducing by a quarter million dollars the amount you need to retire.  If you plan to retire before the age of eligibility, for Social Security and pensions, do not include retirement income in your calculation.

Here are a couple of real-life retirement planning examples:

Example 1: Bob is 51 years old, and calculates that if he retired today, he would need to spend $3,000 per month or $36,000 per year.  How much retirement savings does Bob need to support his retirement budget?

Net Worth = Budget / SWP

$900,000 = $36,000 / 4%

Bob needs a $900,000 net worth to support his retirement budget.  What if Bob reduces his retirement budget by $1,000 per month?

$600,000 = $24,000 / 4%

Reducing his retirement budget by $1,000 per month, reduces the amount Bob has to save for retirement, by $300,000.

Example 2: Susan is 62 years old, has a net worth of $250,000, and is eligible to receive $1,200 per month in Social Security payments.  What is Susan’s safe monthly retirement budget?  A little algebra is required to re-arrange the formula to solve for spending.

Retirement Budget =  (Net Worth x SWP) + Retirement Income

$26,275 = ($250,000 x 4.75%) + $14,400

Susan can safely spend $26,275 per year or $2,189 per month in retirement.

That’s it, that is all you need to know, and all you need to do to plan your own retirement.   If you follow this guide, and plan your own retirement, you will create a more accurate plan than you can get from an expensive financial planner - for free!  If you want to make retirement planning even easier, and receive a custom retirement plan that calculates your retirement date, go to our website and order Green Retirement Planning and Software for only $89.

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