The Blatt Watch by Peter Blatt: Retirement Planning: How to start over and save for retirement without being overwhelmed

From the desk of Peter Blatt, J.D., LL.M. 

It is time to meet and solve your retirement goal.

Part 1.

I changed some of the facts to make sure the client is not identified.

Last week, I sat with a new client who was recently divorced. He is a successful businessman who makes over $200,000 per year and works long hours. He made a deal with his ex-wife to avoid permanent alimony, and he settled with her and provided all of his savings and his house. She is up over $1.4 million and he only has his business income, but they are both moving on with their respective lives. Their kids are grown up and he just celebrated his 51st birthday. We are now planning his future.

His question to me, how much money do I need to retire? The answer is at least 25 times your current expenses. We did some quick math, he wants $200,000 per year to live on after social security. Now, he wants to retire in 15 years (age 66) and he wants to live well. He is planning on having $3,000 a month on social security ($36,000 per year) and he does not have pension plan at his work.

I told him traditional planning says that you can withdrawal 4% of your assets and have it last 30 years of retirement. [As an aside, there is only a 82% chance of his success if he solely invests in mutual funds]. He then figured out how much he needs for retirement (we looked at his current expenses without retirement contribution as he is retired, and indexed it for inflation).

I took the amount he desired (i.e., $200,000 of annual income) and divided it by a reasonable withdrawal rate of 4%, he needs $5,000,000 at retirement.

Formula for Amount Needed: Desired Annual Expenses / 4%  =   Amount Needed for Retirement 
e.g., $100,000 per year of income / 4% = $2,500,000 needed if going to retire today

I told him that is an incredibly large number and it will be very hard to achieve. We talked about alternative choices. We found a way for him to live comfortably by putting away 15% per year and guaranteeing that he has enough income for retirement. Part goes into his 401(k) plan and part into other investments. Let me help you understand how to succeed in retirement. Know your numbers and put a plan together. Start your retirement planning today!