How to calculate your retirement amount

Most people think of your retirement amount when they refer to how much money you will need to retire comfortably. It can be comforting to have a retirement number. This gives you a goal that is concrete and achievable. Is there a single definitive figure that is truly useful in retirement planning?

Although we would love to answer "yes", it could be too simplistic. It is too easy to identify the perfect retirement number, at least for most people. Because it is so easy, the retirement-number idea was popular. It's easy to just plug in a number and move on to the golden years.

It's not always that easy, sorry. Investors need to be able to comprehend the more complex nature of retirement.

Stuff Happens

Unexpected events are part of life, and this will not change as you age. If you retire at 65, you can expect to spend as much as 20 years in retirement. Imagine how much things could change in a span of just two to three decades.

The first Harry Potter movie was released in 2001, two decades ago. To see it in theaters would have been $5.65. The average U.S. ticket cost was $4.21 in 1991, which is 30 years ago. This is more than twice the average movie ticket price today, which is around $9.50 per movie.

There are many other factors to take into consideration, beyond inflation. Let's suppose you have $1 million to retire. It doesn't matter if the stock market crashes the day after retirement or rises for the first ten years of retirement, your retirement experience will be very different. Your financial security outlook could also be affected by family problems and health issues. Your plan could be thrown off track by overspending in the first years of retirement.

These are excellent examples of how the simplified retirement number can be misleading and even dangerous for your financial security. It is necessary to be more realistic.

Introducing Monte Carlo

Monte Carlo simulations, which are mathematically-based analyses, attempt to make sense of ambiguity or random variables. This is how you will retire.

Retirement planning can seem simple and straightforward because there is no formula. Monte Carlo simulations are a great way to get the nuance you need to make your retirement plan work.

These simulations analyze thousands of possible retirement scenarios and use details that are based on your current situation to help you determine your chances of success.

Let's take, for example, the scenario where you plan to retire at 65 and want to continue your lifestyle throughout your life. You want to do this using assets that you already have.

Monte Carlo simulations will simulate thousands of market scenarios. This allows you to see what the market might look like if it crashes or roars shortly after retirement. It also combines these market options with your planned and desired cash flows. Personal Capital's Monte Carlo software uses 5,000 scenarios. In the end, you will receive a probability-of-success ranking of low, medium, or high.

This simplified version is available for you to try.

It is up to each of you to decide what the next step should be. Your financial advisor and you can pull many different levers to help make your situation more likely to succeed. You may find that you have a moderate chance of reaching your retirement goals. You can increase your chances of success by:

  • Do not delay your retirement
  • Every year, save more before you retire
  • Your retirement savings should be reduced
  • In the hope of higher returns, adjust your investment strategy and risk profile

You can pull all or some of these levers to increase your chances that your investments will sustain you through retirement. You can either stick to your plan or be flexible and admit that you may need to make some adjustments. You could take actions like:

  • In retirement, downsizing your lifestyle
  • Part-time work
  • Moving in with your family

Your personal flexibility and comfort level will determine the choices you make.

How can you simulate Monte Carlo on your retirement portfolio?

It's easy, secure, and free to do by signing-up for Personal Capital's financial tools. You'll have access to the Retirement Planner within your Dashboard. This will allow you run a Monte Carlo simulation using your portfolio and other financial events (such as a home purchase or when you plan on taking Social Security).

These robust financial tools combine all your financial information in one secure place. This allows you track your net worth and budget for your short-term goals. It also lets you analyze your investments.

It is completely free and takes only a few moments. It's not like seeing Harry Potter at the theatre.

Planning for retirement is an ongoing process

Monte Carlo planning, as you might have guessed is never finished. Your actual life situation is not static, unlike a fixed retirement number. Your chances of reaching your retirement goals change constantly.

Inflation is one potential risk for retirees. Monte Carlo simulations are a great way to monitor the effects of inflation if it becomes a major factor.

Nobody can predict the future. Not even the best Monte Carlo simulations. A mathematics-based approach to retirement planning is a good starting point. It is important to fully understand your situation, and work towards improving it.

Monte Carlo simulations will ensure that you don't hit the retirement button and check out. You'll feel more in control, as you will be constantly evaluating the effects of new information and adapting as necessary.

7 Essential Steps to Retirement Planning

Here's our take on your retirement number

You are not a number. You shouldn't treat retirement planning as a number. You may need guidance if you are looking to create a retirement plan that is based on your financial reality and adapt as your life changes.

  1. Register for Personal Capital's financial tools to access the Retirement Planner, an extensive retirement planner that will help plan for multiple scenarios.
  2. You should review your retirement plan at least once a year to make any necessary adjustments.
  3. Talk to a fiduciary advisor.

Frequently Asked Questions

Is gold buying a good retirement option?

Buying gold as an investment may not seem very appealing at first glance, but when you consider how much people spend on average on gold per year worldwide, it becomes worth considering.

Physical bullion bars are the most popular way to invest in gold. However, there are many other ways to invest in gold. It is best to research all options and make informed decisions based on your goals.

If you don’t need a safe place for your wealth, then buying shares of mining companies or companies that extract it might be a better alternative. If you need cash flow to finance your investment, then gold stocks could be a good option.

You can also invest your money in exchange-traded fund (ETFs), which give you exposure to the gold price by holding securities related to gold. These ETFs may include stocks that are owned by gold miners or precious metals refining companies as well as commodity trading firms.

How much gold can you keep in your portfolio

The amount of capital required will affect the amount you make. If you want to start small, then $5k-$10k would be great. As you grow, it is possible to rent desks or office space. This way, you don't have to worry about paying rent all at once. You only pay one month.

It is also important to decide what kind of business you want to run. My website design company charges clients $1000-2000 per month depending on the order. This is why you should consider what you expect from each client if you're doing this kind of thing.

Because freelance work pays freelancers, you won't likely get a monthly income if you do freelance work. You might get paid only once every six months.

Decide what kind of income do you want before you calculate how much gold is needed.

I recommend starting with $1k to $2k of gold, and then growing from there.

What precious metal should I invest in?

This question depends on how risky you are willing to take, and what return you want. While gold is considered a safe investment option, it can also be a risky choice. If you are looking for quick profits, gold might not be the right investment. If you have time and patience, you should consider investing in silver instead.

If you're not looking to make quick money, gold is probably your best choice. If you want to invest in long-term, steady returns, silver is a better choice.

How Much of Your IRA Should Include Precious Metals?

It is important to remember that precious metals can be a good investment for anyone. You don't have to be rich to invest in them. There are many methods to make money off of silver and gold investments.

You might also be interested in buying physical coins, such bullion rounds or bars. You could also buy shares in companies that produce precious metals. Or, you might want to take advantage of an IRA rollover program offered by your retirement plan provider.

You'll still get the benefit of precious metals no matter which country you live in. Although they aren’t stocks, they offer the possibility for long-term gains.

Their prices rise with time, which is a different to traditional investments. So, if you decide to sell your investment down the road, you'll likely see more profit than you would with traditional investments.

How is gold taxed by Roth IRA?

An investment account's tax is calculated based on the current value of the account, and not on what you paid originally. All gains, even if you have invested $1,000 in a mutual funds stock, are subject to tax.

You don't pay tax if you have the money in a traditional IRA/401k. You pay taxes only on earnings from dividends and capital gains — which apply only to investments held longer than one year.

The rules that govern these accounts differ from one state to the next. In Maryland, for example, withdrawals must be made within 60 days of reaching the age of 59 1/2 in order to qualify. Massachusetts allows you to delay withdrawals until April 1. New York offers a waiting period of up to 70 1/2 years. You should plan and take distributions early enough to cover all retirement savings expenses to avoid penalties.


  • Indeed, several financial advisers interviewed for this article suggest you invest 5 to 15 percent of your portfolio in gold, just in case. (
  • If you take distributions before hitting 59.5, you'll owe a 10% penalty on the amount withdrawn. (
  • Contribution limits$6,000 (49 and under) $7,000 (50 and up)$6,000 (49 and under) $7,000 (50 and up)$58,000 or 25% of your annual compensation (whichever is smaller) (
  • If you accidentally make an improper transaction, the IRS will disallow it and count it as a withdrawal, so you would owe income tax on the item's value and, if you are younger than 59 ½, an additional 10% early withdrawal penalty. (
  • (Basically, if your GDP grows by 2%, you need miners to dig 2% more gold out of the ground every year to keep prices steady.) (

External Links

How To

Guidelines for Gold Roth IRA

It is best to start saving early for retirement. As soon as you become eligible, which is usually around age 50, start saving and keep it up throughout your career. It's vital to contribute enough money each year to ensure adequate growth on an ongoing basis.

Also, you want to take advantage tax-free options such as a traditional 401k, SEP IRA or SIMPLE IRA. These savings vehicles enable you to make contributions while not paying any taxes on the earnings, until they are withdrawn. This makes them a great choice for people who don’t have access employer matching funds.

It's important to save regularly and over time. If you don't contribute the maximum amount, you will miss any tax benefits.


By: Paul Deer, CFP®
Title: How To Calculate Your Retirement Number
Sourced From:
Published Date: Wed, 04 Jan 2023 20:00:33 +0000

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