Setting Your Retirement Goal

If you are familiar with any sport, you know there are typically two sides - the offense and the defense.  Most of the time, the defense is protecting the goal, and the offense is trying to get to the goal.  What would happen if the offense didn’t know where the goal was?  What would it look like for a team to scurry along the field or court not knowing what they are shooting for?  Well, that’s exactly what a lot of us do when it comes to money.  We go along through life not knowing what we are shooting for.  We have no long term goals set for ourselves.  

When it comes to money, we need to know what our goals are, then strategize and make a plan to achieve that goal.  In this example, let’s take the big goal most of us have - retirement.  We know retirement is coming someday right?  But outside of “not working” at your job anymore, what does retirement look like for you?  What are you doing, where are you going, how are you spending your time and money?  

Many people say they want to travel when they retire, but don’t sit down, make a list of the places they want to go, and figure out how much it will cost to do these things.  So, they end up going on maybe 1 or 2 trips and realize it’s too expensive and can’t fulfill these goals.  If they knew ahead of time what their budget was for the trip and knew how much they had, it would make this season of life so much better and easier to navigate.  That’s just one example.  The clearer we are on what else we’ll be doing in retirement, how much we have for income, and what our investments look like, the easier it will be.

Take a few minutes to dream about what retirement looks like to you, no matter if you are currently 20 or 60.  What did you come up with?  Now, what would need to happen for you to ensure that you could do those things?  Most of our dreams will cost some money, but how much do you need in order to accomplish these dreams?  That is where the planning phase comes in.  Let’s do some math and give you an example to help you get started on your own. 

Let’s say you currently make $75,000 per year and when you retire, you’d like to live on the same annual income.  If you aren’t working at all in retirement, you’ll need to generate that income from one or more of the following: 

• Social Security
• A Pension
• Retirement account
• Rental property
• Side job
• Other

With the average SS payment being around $1500/mo. ($18k/yr), you’ll need to come up with another $57k to make your $75k income a reality.  If you have other sources of income (which I’m a big fan of), add those numbers to your Social Security.  Then, subtract that total from $75k and you’ll have your “needed” amount.  For our example, let’s say you can make another $7k with a side hustle.  This means you need $50k for the rest of the year to live on that $75k desired income:

Desired Income: $75,000

Social Security: $18,000

Side Hustle: $7,000

Needed Amount: $50,000

If you need $50k for the year, that’s $4167/mo.  How much will you need in your retirement account in order to generate that kind of income?  This is your retirement goal or what I call your “Big Number”.  Do you know your number?  Most of us don’t, therefore we work until we feel like we are “done” and hope we have enough money to do a little bit of what we want before it runs out.  Instead, walk through the plan I laid out so you know exactly how much you need - then you can make better decisions on when to retire. 

If you don’t know your big number, you won’t know what you are shooting for, just like the sports analogy I mentioned earlier.  Once you know your big number, you will be able to figure out how much you need to put away each month or year to reach that goal (based on your current age)? 

Lastly, we come to the execution phase.  

1. Deam: Once we know our retirement number, we have our goal set.  
2. Plan: We calculate how much we need to put away in order to reach that number.
3. We execute the plan we’ve put in place.

In summary, for the example above, we need to generate $50k/yr from our investment accounts.  For the sake of easy math, if you made an average of 10% on our money, you would need to have $500,000 when you retire to live solely on the interest and not deplete the principle.  If you made 5%, you would need $1,000,000.  Now, figure out how much you need to put away in order to get to $500k.  Obviously your age, income, rate of return, how much you already have saved, and other financial goals come into play, but we now see that achieving your retirement number is doable for almost every one of us.  It’s just a matter of what you are willing to sacrifice so you can invest that money each month.  

If you aren’t putting away enough for your retirement, ask yourself this question…”What am I spending my retirement money on right now?”.  It could be coffee, cable, eating out, extra gifts, vacations, cars, the house, toys, electronics, music, movies, sports, entertainment, clothing, or many other things.  None of these are bad, but look at your spending and really assess whether all of the things you spend your money on are worth it if you are behind on your retirement.  N amount of “stuff” can make up for an empty and unfulfilling life.  There is no reason most of us in North America, if we can get and keep a job throughout our adult life, should retire without some wealth. The choice is up to you.  Enact the 3 step process - Dream. Plan. Execute. and start winning with money and in life!