A Retirement Planning Workbook

How much money do you need to retire?

It’s a simple question with an unsatisfying answer: It depends.

A few months ago, my sister asked me to help her think through retirement planning. I could have pointed her toward one of the familiar rules of thumb: save a certain percentage of your income, accumulate some multiple of your salary, or withdraw some percentage of your portfolio each year.

But those rules skip an important question.

What do you actually expect your retirement savings to do?

There is a meaningful difference between having enough money to last until your expected death and having enough money to enjoy the retirement lifestyle you are envisioning.

Having taken courses on this during my finance-oriented MBA program, I knew the models and had used them personally myself. But there were two problems:

• my sister didn’t have MS Excel(R)
• the models can get complicated — you are planning the rest of your life after all

So, I built her a workbook that matched the style of a high school algebra worksheet we knew all too well from our childhood days. One that would walk her through the math and the models in a structured and straightforward way. One that requires nothing more than an hour, a pencil, and a calculator.

Four different answers to the same question

The Retirement Planning Workbook starts by estimating what your particular retirement might cost. From there, it calculates four progressively more demanding retirement goals.

Annuity Model — Accumulate enough to fund retirement through your expected lifetime, ending with approximately zero dollars

Capital Preservation Model — Fund those same retirement expenses while preserving the original retirement principal from the Annuity Model

Purchasing Power Preservation Model — Preserve not just the dollar amounts, but the lifestyle your retirement capital can fund through your expected lifetime. This model accounts for an increasing withdrawal amount each year to match rising expenses due to inflation.

Capitalization of Earnings Model — Accumulate enough capital to support a perpetual, inflation-adjusted stream of retirement income. Basically, this model states, “You’ll never run out of money, even if you live forever.” But that assumes your lifestyle doesn’t increase along with the account balance.

These aren’t four different ways of calculating the same number. They represent four different answers to the same question, What is my money supposed to accomplish?

The workbook then works backward from each capital target to estimate how much you need to save annually—and approximately monthly—to get there after accounting for your current retirement savings.

Find your number

The purpose isn’t to tell everyone they need the same number or give a ‘ten times your salary’ back-of-the-envelope calculation.

It’s to give you a framework for developing your number based on your expenses, retirement age, life expectancy, expected investment returns, inflation assumptions, current savings, and most importantly—the retirement lifestyle you’re trying to fund. That is key. If you expect to travel six months of the year in retirement, then perhaps your annual expenses will increase after retiring, rather than decrease. The point is the models use your numbers based on your vision for retirement.

I’ve made the workbook available below as a free PDF. Print it out, grab a pencil, a calculator, a cup of coffee, and work through it from beginning to end.

Remember to repeat this exercise annually as your retirement savings grows, as you age one year closer to retirement, as you update your current or planned expenses and assumptions.

And the assumptions are important. Small changes in investment returns, inflation, retirement age, or spending can produce very different results over decades.

And if the number you get isn’t the number you hoped to see, remember what it actually represents: not a verdict, but a planning target.

For educational and personal planning purposes.
This workbook does not constitute individualized financial, investment, tax, or legal advice.