How to Retire Comfortably: Start With the End in Mind

I hope you enjoy the 4th post of my ‘Understanding Retirement Planning & Investing’ series! If you’ve missed the first three posts be sure to check them out!

The Average American’s Retirement Philosophy

A few weeks ago Joe was driving through the state of Kansas and noticed a large barn on the side of the road. It wasn’t the barn that caught his eye, rather it was the 3 targets painted on it that had arrows sticking out. All the arrows were perfect bullseyes!

You see, Joe had grown up hunting with his father and had recently become fascinated with archery. He’d been practicing for months and while he was getting better he surely wasn’t capable of hitting one bullseye, let alone 3 in a row!


Picture by kongsky

With his curiosity getting the best of him, Joe pulled up the farmers driveway, parked, and knocked on the door.

The farmer opened the door and Joe said, “sir, I’m sorry to bother you but I was driving down the road and noticed the targets on your barn with 3 perfect bullseyes! I’ve been practicing archery for months now and I simply must know how long it took you to become that good?!

“Well,” the farmer replied, “I got a bow for Christmas and had never really shot before. So, in all honesty, those were my first three shots of my life.”

A little appalled and embarrassed Joe stammered, “Are you serious? I’ve shot hundreds of times and I’ve only been able to get 1 bullseye.”

Seeing that Joe had gotten it all wrong the farmer responded, “No son, you misunderstood. You see, I took the new bow out, shot three arrows, and then painted the targets around the arrows. I didn’t really shoot those bullsyes. I just wanted it to look like I did.”

I heard this joke from one of my co-workers a few months back. While it’s funny, it’s the reality of how most people plan for retirement.

We don’t plan ahead and our lives in retirement are simply molded (“painted” in my analogy above) around the assets and income sources that we have when it’s time to ‘hang up the boots.’

The truth for the Average American is that life in retirement will never look like so many of us dream. We fail to save properly which has caused retirement to become an act of survival instead of ‘living the dream’ that so many originally hoped for.

How to Retire Comfortably

One of the main reasons I became a financial advisor was due to the fact that I became increasingly concerned with my generation’s ability to save for retirement.

With the recent news that Social (In)Security is projected to run out of reserve funds by 2033, it’s never been more important in the history of our country for people to start saving, properly, for retirement.

Did You Know: 53% of working Americans have never thought about, or
calculated, how much they’ll need in retirement?

First Step to Figuring Out How You Can Retire Comfortably

If you want to retire comfortably then YOU MUST START WITH THE END IN MIND.

What do I mean by that?

Well, the question you must answer if you want to retire is “how much MONEY do you need to live?” NOBODY, should retire without knowing that number.

For our clients we help them come up with two income figures and we have them figure this out in today’s dollar:

  • Survival Income – utility bills, house payment, insurances, groceries, debt payments (hopefully you won’t have any by then), etc.
  • Desired Income – an amount in addition to survival. Maybe some for traveling, spoiling grandchildren, etc.

2nd Step to Retire Comfortably

Once you have a monthly dollar amount (in today’s dollar) that you’ll need in retirement, there are a few things you must take into consideration:

1. Inflation – the reality of inflation is that prices for goods double, on average, every 20 years. Assuming a 3.5% average rate of inflation.

2. Age – how much longer do you have until retirement?

Example: Let’s say Joe and his wife are 35 years old and they have two young children. They plan on being debt free by retirement (excluding the house) and both of their children will be graduated from college around that time as well. Their dream is retiring by 65 so that they can enjoy their remaining “younger” years and also hope to have time to spend with their eventual grandkids.

Understanding what their monthly expenses are today, and acknowledging a few costs will be gone once the children are grown, they determine they’re going to need $3,000/month in retirement to survive.

Adjusting that number for inflation (3.5%) they’re able to determine that by age 65, Joe and his wife will need $8,420 per month in order to ensure all of their monthly bills are being paid.

WOW! The affects on inflation are scary! Maybe that’s why nobody wants to take the time to calculate what they’re going to need in retirement?

3rd Step

Determine the amount of investible assets that you need in your nest egg to produce $8,420/month of income:

1. Multiply by 12 to get the annual income amount. $8,420 x 12 = $101,040

2. Divide that annual number by .04. $101,040 / .04 = $2,526,000

While this topic is widely debated, generally a good rule of thumb is to assume that a person can withdrawal 4-4.5% of their assets on a yearly basis, AND NOT HAVE TO WORRY ABOUT OUTLIVING THEM. In step 2 when I divided by .04, that is how we work backwards to figure out the 4% part. 4% of $2.526M = $101,040

Did You Know: 67% of Americans over the age of 44 said they fear
outliving their assets more than they fear dying?

Bringing it All Together

Once you’ve figured out “the number”, then you must create a plan to get there!

This is where the majority of us fall short. We see this HUGE, insurmountable, ginormous number ($2.5M) and we freak out. Well, sticking your head in the sand doesn’t do anybody any good!

Pushing it off ‘to another day’ also doesn’t help the situation. If you keep saying that ‘I’ll eventually get there, or I’ll start saving when “xyz” happens’, then I promise that YOU’LL NEVER GET THERE!

In the scenario above, Joe and his wife would need to start saving approximately $1,400 PER MONTH* in order to reach $2.5M by the time they turn 65. *assuming a 9% average rate of return and assuming they didn’t have any other prior retirement savings.

While initially this may look daunting and you may be wondering how in the world to save $1,400 per month, there are some things this doesn’t include:

  • Social Security
  • Pensions
  • Inheritances
  • Future raises- if you get paid more over time, hopefully you will be able to save more
  • Simple Man’s Guide: Figure Out How to Retire Comfortably

    1. Determine monthly income need (in today’s dollar) – it’s easier for most to know their monthly need as opposed to figuring out an annual number.

    2. Adjust for inflation based on your age and projected retirement date – I like to use 3.5% as my inflation rate.

    3. Convert monthly amount into annual figure – multiply your inflation-adjusted monthly income number by 12.

    4. Divide the inflation-adjusted annual number by .04 – this will give you a lump sum number that you need to have by your retirement date.

    5. Determine and develop a course of action to get you to “your number.”

    Now, many of you can see why I’m scared for my generation. These numbers aren’t make-believe…THEY’RE REAL! What is going to happen WHEN Social Security runs out? Will people EVER be able to retire if they’re solely reliant on the assets they’ve saved?

About the Author

By , on Apr 30, 2012
Andy Tenton
Andy is a 30-something New Yorker who turned his financial life around. He took charge of his finances, got out of debt, and is now working his way toward financial success. He is the publisher of

How to Become Rich e-Course

Budgeting 101


  1. You are right that this all looks very daunting. You laid it out very well though – this will be helpful to many people.

  2. Ran through your strategy quickly with our current cost of living and savings rate and it showed we should be ahead (projected need 3.1 M$, projected assets at 65 4.4 M$), assuming that we will have a paid-for home at retirement. That’s exactly what we have been trying to do, as we expect our standard of living (and saving) to rise when we get real jobs and we don’t want to feel behind the eight-ball. I think I’ll play around with some more scenarios and write a post. Great outline!

  3. Shilpan says:

    Everyone should read this article. Social Security income may last for another 30 years at best, but future generation will have to save more to fund their retirement. With increasing national deficit, my worry is about the future inflation. So, if inflation shoots up (over 3.5%) then all bets are off.

  4. Love the joke – and the whole story behind this post! It’s definitely important to know your number and make a plan to get there. Starting in your 20s – or even 30s – is so important.

  5. You are very correct in the start at the end philosophy. However, it’s important to point out that in the best case scenario, you are planning 30 to 40 years, you should plan on the worst case scenario. I’ve seen trending in surveys where millenials are planning on working through retirement. I think it could lead to less savings and ultimately leave a generation without a retirmeent option should they change their minds.

    • Andy says:

      You bring up a good point Wayne! I’m not opposed to planning for the worst case scenario but getting people to plan for the best case works for me – as long as they’re getting started towards something and not just being oblivious as we normally are.

  6. JAMES says:

    This is a well written article. But I hate “THE NUMBER”. THE NUMBER is something fabricated by the financial services industry so that you will invest more. If your number is 2.5 million and you have 800k when you retire, well, you will figure out how to live on 800k. The latest article I read on this topic said, plan your investment strategy assuming you will live until 100. 100, are you kidding me? What the hell am I going to do with any money when I am that old. Yah, when I retire, maybe I will go on a trip or two. But once I hit 70, the only trip I will take is to the local Dunkin Donuts for a coffee. If I hit 80, the only trips I will be taking is to the bathroom. If I hit 90, JUST SHOOT ME.

    • Andy says:


      I guess my point is if you know “the number,” and can hit it, then you’ll probably be able to retire comfortably. My story about the bullseyes is as I stated: the perfect analogy to the ‘average American’s retirement philosophy’: the majority of us will not have the proper amount saved (“the number”) and therefore will have to paint our retirement picture based around the assets we’ve saved.

      So you’re right…if somebody has 800k, they’ll make it work but it won’t be the life they hoped (which defeats the purpose of my entire post). Again, the reality of inflation also shows me that $800,000 in assets 35 years from now will be approximately $1,000/month in today’s dollar – you could of course draw down more than 4% per year but you’ll have to go to sleep every night that knowing your money could run out before you die. I don’t think you’re going to be doing much of anything at 60 or 90 with $1000/month though (unless there are subsidies from the government of course).

  7. AverageJoe says:

    Not to be controversial, but I agree with Jane Bryant Quinn: social security isn’t going to run out (I believe Financial Samurai just did a similar post echoing Ms. Quinn’s assessment).

    To me, this is issue #1. I get so so so so so sick of people making investment decisions without knowing what return they need to reach the goal….and then complaining that their investments “didn’t work.” How do you know if it’s working or not if you don’t know the end game? And, to what degree did it “not work?”

    It’s incredibly simple and powerful, yet few investors understand just how powerful it is to begin with the end in mind.

    • Andy says:

      I don’t mind controversy, AJ. It’s not really controversy….just an opinion.

      I haven’t read any of her information but if I get time over the coming months I’ll look into it. I’d like to see her assessment and I’m curious why you would believe it. There is no question Social Security funds WILL run out, the question is rather will the government continue to pay out proceeds when it does?

      I DO believe Social Security will be continued in some form just not what it is today. I believe it will be means tested and/or the “retirement age” will be pushed back further. Probably the latter first and then the means testing.

      With that said the numbers don’t lie; our government WILL have to go into debt to support this program OR they will have to tax the rich further. At the end of the day (decades from now) I believe America will come down to two possibilities: collapse or Socialism. If we move to a politically correct version of Socialism then yes, Social Security will continue to exist.

      If our government chooses to go into debt to support the program, IMO, there has to be a time where our debt ceiling ceases to get raised further. We can’t continue to go into debt forever, can we? Assuming there has to be an end to the madness there again only leaves two possibilities: collapse or a politically correct version of Socialism.

    • We have clients who are afraid of stocks so they stick with bonds. Then when the market is up 12% during the first quarter and their portfolio is only up 4% they complain. It’s frustrating because they just don’t understand. So many don’t understand how much they need for retirement. It is so far away, they say and they’ll cross that bridge when they get to it doesn’t work in this situation!

  8. That amount of retirement savings does seem daunting – but we have to remember that inflation can also work for us. Depending on our investments (i.e. real estate), inflation will (ideally) increase the value of our asset. Plus, compound interest can also help us out.

    So even if we need 2 or 3 million by retirement… that doesn’t necessarily mean that we have to SAVE that much money.

    • Andy says:

      Julie, you make a great point: during periods of inflation returns on investments tend to be higher.

      Compound interest is also a key. IF Joe and his wife were have to start saving at age 25 (instead of 35 in my example) they’d only need to have saved $550/month as opposed to the $1400 a month. It’s so important to start early and let the power of compound interest do the rest.

  9. Andy, the hardest part for me is step #1. I am only in my mid twenties and have no idea how much I’ll be spending a month when I retire. I do save 21% of my post tax income in Roth Vehicles (Roth 401k and Roth IRA) and get 4% employer match in non roth, so I’m hoping I’ll be OK without having a number in mind quite yet. I’ll probably visit it in a few years once things settle down financially.

    • Andy says:

      Lance, it’s certainly challenging to project that far into the future but with an understanding of what things cost today I think you can still get a decent idea of a rough number.

      If you’re making $4k/month now and life is relatively comfortable than you could probably use that as a baseline (or whatever you make now). Regardless, I think saving that amount of money in after-tax accounts is pretty amazing. You’ll be able to start planning at age 40 and realize that you won’t have to do much more in order to ensure a nice retirement by 55 or 60.

  10. Jefferson says:

    Sometimes when I run the numbers on how much money I will need to retire and maintain my current standard of living, I want to run away and cry. When I factor in that I may not be able to count on Social Security being around at that point– the situation even worsens.

    But I am confident that I can get there with dedication and hard work.

    • Andy says:

      You’ll make it Jefferson! You can only do the best you can do and at the end of the day you’ll have to be content with whatever that life looks like. One day I think you’ll be able to rest easy knowing that you tried your best though…

  11. Katie says:

    You’re right, when I see the actual numbers it really does scare me. Seeing a number in the millions seems like it would be impossible to reach, but I guess that’s why we need to start saving today instead of tomorrow..

  12. It’s a great post, but man, I hate reading posts like this, they scare me. A lot. But thanks for putting the reality in front of my face, it’s important!

    • Andy says:

      Yeah, sorry TB! Nobody likes to see this stuff but it is reality and the longer people go about ignoring it the worse it’s going to get down the road.

  13. Great post, Andy. Inflation is scary when you’re thinking about retirement. Personally, I’m just pretending Social Security doesn’t exist for our planning. That way, if it comes through, it’ll just be a nice little bonus. 🙂

    • Andy says:

      I’m with ya Jen! No social security in my plan. As I mentioned to AJ earlier, I think it will be around (it will have to be actually), just not for people that have done a good job of saving on their own. I believe it will be more along the lines of Medicaid.

  14. Andy says:

    More than a little scary. I’ll do more write-ups on this in the future but this is the primary reason I believe America will eventually be a Socialist country. There is ZERO chance the majority of people will ever be able to retire. The reality though is that EVENTUALLY you can no longer work to support yourself (whether due to mental or physical issues). What happens then? The government can only support people for so long…

  15. Great post Andy! This is how I calculated how much I need for retirement in order to live comfortably. I made sure to account for inflation and age. I played around with different numbers for age and for how comfortable I want to live. In the end it always comes out to close to 2 million, and that’s scary but at least I have a goal to work towards.

    • Andy says:

      That is awesome! I’m proud that you’ve calculated it – you join my group of awesome financial bloggers! 🙂

      The $2M is scary but if you start early it is fairly easily attainable.

  16. This is a very eye-opening post, and I loved the bullseye analogy. There are many of us who have never taken the time to calculate how much money we would need to retire, because we’ve never really thought about it. Although saving for retirement has been taught by many of the early motivational gurus of the 1960s and 1970s, it still hasn’t completely resonated with the masses. Today, if you mention retirement planning and investing, you’ll still get a lot of blank stares.

    Hands down, I think that anybody reading your ‘Understanding Retirement Planning & Investing post series would receive a powerful explanation on the concept and practical applications of how to prepare themselves for retirement.

    • Andy says:

      Thanks Anthony! I don’t think it resonates with the masses because we’re too busy “living life.” For the majority of our history as a country we’ve not been responsible for saving on our own, so this will be something we’ve never faced before. In the mid-1900s we had pensions and social security was formed. My generation will be the first that (more than likely) will be completely self-dependent.

  17. Great post, Andy! I was actually working on one very similar this weekend. The story with the bulls-eye definitely frames this in the right context. I unfortunately think there are going to be a lot of people painting the mark around their arrows when the time comes for retirement, and it isn’t going to be very pretty.

    • Andy says:

      Yeah…it’s going to be really ugly. I talk to a few of my close friends about this kind of stuff but I would be REALLY intrigued to see where we are as a country 40-50 years from now (I wish I had a time machine!). I can’t envision a scenario where it looks good. I’m not a dooms-day person; I’m just a realist and look at the numbers. The numbers don’t lie.

  18. Wow…2.5 million is a daunting number. I totally understand why people (including me) stick their heads in the sand when it comes to saving for retirement. So far, I haven’t calculated how much I need to retire. I’ve just been saving what I can into my Roth.

    • Andy says:

      It’s wonderful that you’re doing what you can now, but I believe it’s important to understand what your future needs to look like as it will help you make decisions in the now.

  19. Modest Money says:

    Yes far too many people are going to be screwed if social security runs out. With the lack of financial discipline of a large percentage of the population, a decent portion of people just won’t be able to save that kind of money. I admit I’m one of the people that have never sat down and actually calculated how much money I would need to retire. It just seems like such an overwhelming thing to do when you know you aren’t currently in a position to save so much money.

    • Andy says:

      It’s definitely an overwhelming situation but the important thing is that you’re taking steps in the proper direction every day/month/year. While you may not be able to currently save the amount you need to be saving you should at least do what you’re capable of. Furthermore, doing things to pay off debt, limit spending, and increasing income are all parts of the long-term solution.

  20. Love your formula. And I agree, we must start with the end goal, then work backwards. This hard work can then all filter down into a monthly budget that includes the savings we now know we must achieve to reach our end goal. Without this context, how does one decide whether something–a house, a car, a vacation, a renovation, a third child–is affordable? To me, ‘affordable’ should mean something like ‘can be paid for with cash (except huge expenses like a house) and fits in our budget along with the savings we know we must set aside to reach our long-term goals.’ I fear for many ‘affordable’ means, if we have the cash (or credit!) to pay for it, it’s affordable!

    • Andy says:

      Kurt, you and I could be good friends!

      I teach all of my clients that the majority of people only see the here-and-now and think about handling the future as it comes. The reality of managing money well though means that YOU MUST learn to live well below your means today WHILE properly planning for retirement. So, frankly you state it even better than I do: you must start with the end in mind and back your way into how you can live today. Period.

      With that said, it will never happen. :/

      • Andy, just had another thought on this post: I think it could be an illuminating exercise to work your formula backwards. Start with how much one is saving, do the math in reverse, and end up with the level of retirement monthly income that translates to. That this number may imply senior years tent-living for many should be an attention-getter!

  21. Really good and informative article. I put a nice amount towards retirement each month but I have never really sat down to see how much I really will need by the time I retire.

  22. Tawni says:

    Wow, Andy. Solid info! I’m sure we’ll be seeing this one circulate for a while.

  23. Andy, getting people in their 20s to think about this can go a long way to helping them meet their goals. Those who start in their 50s? Well, they better be making amazing salaries to get it right. Great post!

    • Andy says:

      You’re right, Thad. It’s difficult if you’re in your 50s but at least that generation will have social security (in all likelihood). If they don’t have enough assets to supplement social security then there is only a few things they can do: 1) lower expectations/lifestyle, 2) work longer, 3) save more, or 4) earn a better rate of return.

  24. Michelle says:

    My number is around $4.5 million (I’m 22 so I’m not retiring for awhile). It’s really scary to think about, but I know I’m not going to rely on Social Security, I’ve never even thought in my life that it will be there when I’m 65 (and it most likely won’t).

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