*Note: Having run approximately 1,000 of these calculations, it truly does all come down to the same few inputs and (sorry CFP® board) it isn’t rocket science.
Retirement Planning in 15 seconds:
1. Multiply your Retirement Investment Portfolio (sum total of all assets earmarked for retirement) by .04 (Fidelity calculated this to be the safest withdrawal rate to prevent you from depleting your portfolio)
2. + Social Security (for both spouses)
3. + Any Pensions
4. + Any other income (rental income/royalties/etc.)
Advice: live on that.
If buying a new Mercedes and traveling to Europe every other month is achievable within that budget, then go for it. If not, then you might want to reconsider acting on those visions of grandeur.
If your total doesn’t meet your expectations, then consider some part-time work to supplement that income stream and/or look into a reverse mortgage (not tailored advice, just options to consider).
So whether you are 55 or 75 and are not sure if you can retire, use this “back of the napkin” formula to help you quickly gauge whether retiring is financially feasible.
The most important question is not whether you can earn 6% vs. 5% on your retirement accounts (although that helps); it is calculating and being mindful of your retirement budget.
Tim Higgins, Author of Paying for College Without Sacrificing Your Retirement and Unconventional Investing