Tony Robbins: Use This Formula To Calculate How Much Money You’ll Need in Retirement
Written by
James Holbach
Edited by
Jenna Klaverweiden
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How much money will you need to fund your retirement? Do you know the exact number, or even a ballpark amount? This was a question posed by Tony Robbins.
According to various reports, about half of Americans haven’t yet tried to figure out how much money they will need to fund their retirement. This is a critical first step in securing your financial future. “You can’t reach your financial dreams unless you know precisely how much it will take to get there,” Robbins noted.
If you don’t start planning for retirement as soon as you can, you are setting yourself up for failure, which could be disastrous when you do reach retirement age. People are living longer, and Social Security benefits simply haven’t kept up with the cost of living. So it’s not safe to simply assume that you can get by on Social Security payments.
The sooner you know where you stand financially, the sooner you can get to work making sure you’ll be able to retire the way you want to instead of struggling to make ends meet.
The Formula
So how do you figure out how much you’ll need? It will depend a lot on your retirement goals and what kind of lifestyle you want. Maybe you want to buy a new home or spend your golden years traveling. Or maybe you’d be happy to just maintain your current standard of living. There isn’t a one-size-fits-all answer to this question, but Robbins’ blog post offers up a reliable formula to use as a baseline.
The first step is to calculate how much money it takes to maintain your current lifestyle — that is, not the income you make but your actual expenditures. If you already have a budget, this should be easy. If you don’t have a budget or don’t track your spending, then now would be a great time to begin.
The second step is to multiply that number by 20. That’s your working assumption of how long retirement will last. For any given person, it may be more or less. Starting at 20 is a bit conservative, but it’s generally always better to be more conservative when planning for retirement, especially if it’s many years out. It’s hard to predict what will happen to you 10 or 20 years from now.
If you want to pursue a lifestyle upgrade when you retire, that’s going to add a bit of legwork to the formula, as you’ll need to figure out an estimated yearly cost for that lifestyle before you calculate your needed retirement savings.
“The number you come up with may be massive,” the post noted, “but don’t be afraid to dream big. With the right mindset and relentless focus, you can go beyond ‘How much do I need for retirement?’ and start asking ‘How much do I want for retirement?'”
Be Aware: 8 Common Mistakes Retirees Make With Their Social Security Checks
Building a Money Machine
According to the post, the question of how much you’ll need for retirement boils down to building enough wealth to fund the longest possible number of retirement years.
“You MUST build a money machine, harnessing the power of compounding to create an income stream for the rest of your lifetime. In other words, you must automate your savings in a tax efficient manner and utilize an investment strategy that will keep earning in any season,” the post noted.
Taking advantage of compounding is important because it lets time do the work of investing for you. As you get a return on your investment, that return gets reinvested and in turn begins to draw its own returns. Now your money is making more money while you sleep, and over the years, it can grow into enough wealth to make sure your retirement is secure and worry-free.
Get Help With Your Plan
If you’re having trouble figuring out your retirement number — or perhaps you’ve figured it out but don’t know where to start as far as saving and investing goes — don’t be afraid to reach out for professional help. A financial planner or retirement advisor can help you put together a plan that is optimized for your specific financial situation and future goals.
Be sure to look for advisors who have a fiduciary obligation. That means they are professionally bound to act on your behalf and in your best interests, just as a lawyer does for their client. Looking for respected credentials, like the certified financial planner designation, is also a great idea.
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