Retirement math


Q: I’ve recently read that if I plan to retire at age 65, and my total annual household income is $100,000, that I would need $1.1 million in savings and assets. Because I plan on keeping as much as I can in the TSP after retirement, can I tack on the interest to be earned on my account savings onto my TSP retirement savings to come up with a “summation” of life-savings value to be able to say what amount I could/should realize? The article also suggested that a 3.6 after-retirement percent interest rate would be a cautious assumption. Your opinion?

A: It’s impossible to know how much you’ll need to have saved at retirement when the only two data points you have to work with are your retirement age and and your total annual household income. The amount that you’ll need will depend upon lots of factors, including assumptions about tax rates, inflation, special spending needs, pension income, special spending needs, the age of your spouse or any dependents, and not least; how your money is managed along the way. While estimating your savings’ growth before retirement is essential to determining how much you should be saving to reach your goal, simply assuming that you’ll earn 3.6 percent every year is naïve and possibly dangerous. Don’t forget that whatever number you come up with today will be changing over time with inflation. What really matters is the real rate of return – the difference between the nominal rate of return and the rate of inflation – that affects your savings. Also, assuming a constant rate of return ignores the reality that includes lots of risk. How that average rate of return is actually produced matters – a lot. Picking what seems like a low return target may also induce you to save more than you really need to, work longer than necessary, or live too far beneath your means in retirement. As I’ve said at least a thousand times, avoid using rules of thumb to plan your retirement!


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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