What's A Good Retirement Goal?

Faith asks if she should have a goal percentage or dollar amount to have saved at retirement. Dave explains.

QUESTION: Faith on Twitter asks if she should have a goal percentage or dollar amount to have saved at retirement. Dave explains.

ANSWER: Life doesn't happen linearly, so you can't predict things are going to be smooth because you're either doing really good or really bad. Very seldom are you just bored for two decades. It's an unusual thing if you're bored for two decades. Your overall goal—constantly adjusted and monitored—ought to sound something like this: You ought to be able to live off of 8% o your nest egg a year or less. If you had $500,000 saved, 8% wuld be $40,000 a year. If you want to live on $40,000 a year at retirement, you need $500,000. If you want to live on $80,000, you need $1 million. That's probably a pretty good target—somewhere in there or above. Much below that, you're going to struggle. You're going to start counting on the government, which is well- known for its ability to handle money.

Where did I get that big deal figure? Throughout the history of the stock market, the Standard & Poor 500 through today has averaged between 11% ad 12%&mash;the S&P 500. Some people don't think it's going to average that in the future, but they didn't when it was booming, either. There's always somebody who’s negative. If inflation runs 3% o 4% ad you're making 11% o 12% ad you pull off 8%, ou're leaving enough in there to give you an inflation raise every year.

A good rule of thumb is try to have enough of a nest egg you can live off of about 8% o it.