What’s your number?
Which number, you may ask? My waistline, IQ, daily caloric intake? This world is filled with numbers to track. Please clarify.
I’m glad you asked. Your financial independence number--the amount of money you need to accumulate in financial assets to make work optional and retirement possible.
You may recall that there was a celebrated book written about it in 2006. It was actually titled “The Number.” Tellingly, I read it cover to cover and it never actually provided a number.
So what’s yours? Do you know it?
State of Confusion
Likely not, which is no fault of your own. If you pay too close attention to the personal financial news you may be too discouraged to try, or simply confused.
A prominent insurance company reports that, in 2024, Americans believe they need $1.46 million.[i] This is our own money, in retirement, investment and bank accounts. The study is impressive. The number’s real.
Charles Schwab ups the ante a bit, reporting that Americans think they need $1.8 million, based on a survey of 401(k) participants it conducted in April 2024.[ii]
Yet another financial service company places the numbers as low as $50,000. Only one in ten retirees age 55 and older with between $10,000 and $50,000 accumulated reported that their retirement is in crisis.[iii]
Two Things Can Be True
Can this be true? It appears to be as real as the pages on which it’s printed.
A very smart person, namely my millennial niece, once told me that two things can be true. I hadn’t really thought of that before and it really hit me. Apply it here, and I believe that many things can be true, but perhaps not all for each person.
Yes, some people do need $1.8 million to retire. That’s their number. Others may be able to get by on as little as $50,000 in an emergency fund. Others may need $3 million and others still may need half of that.
Your Truth
As practicing financial planners, our team knows that the truth that matters is your truth—dare I say your number—and yes we can determine it with your help. We won’t consult any expert studies, survey or reports. These may be useful in professional debates, but not when focusing on a data point of one. You.
We’ll uncover the number the old-fashioned way, by first focusing on your spending needs, then on your guaranteed income sources--Social Security and pensions--and then on determining how much income you need to generate from your financial assets—meaning bank, investment, and retirement accounts. For some, this number (total financial need for retirement) can be quite large. For others, who have substantial pensions and moderate needs, it may be zero.
There you have it. It’s somewhere between zero and infinity.
As I detail in my second book, “It’s All About the Income: Your Simple System for a Big Retirement,” this cash flow number, your spending amount needed, determines the amount of financial assets you need to accumulate to be financially independent. We’ll have no problem showing you this.
The Easy Part Is Over
Generating your number may in fact be one of the easier tasks in financial planning, both for you and us. For us, we typically must help manage the money to make sure you hit the number and, of course, keep it adjusted for such pesky things as taxes and inflation. We’ll make sure your family is properly protected with the efficient insurance and estate planning package. These are technical tasks that we handle systematically with our competent and caring team.
You face the bigger challenge of knowing at least one part of the big question in personal finance, which is really just life: when will you know you have enough and what will you do then?
For many of us, figuring out what to do then is the harder part.
Michael Lynch CFP is a financial planner with the Barnum Financial Group in Shelton CT and Fort Myers Florida, and the author of three books, It’s All About The Income: A Simple System for a Big Retirement (2022), Keep It Simple, Make It Big: Money Management for a Meaningful Life, October 2020, and, most recently, Taking Care of Your Future: The Yale New Haven Nurse’s Guide to Retirement (2024). You can find more articles and videos at michaelwlynch.com. He can be reached at mlynch@barnumfg.com or 203-513-6032.
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[i] “Americans Believe They Will Need $1.46 Million to Retire Comfortably According to Northwestern Mutual 2024 Planning and Progress Study,” April 2, 2024, https://news.northwesternmutual.com/2024-04-02-Americans-Believe-They-Will-Need-1-46-Million-to-Retire-Comfortably-According-to-Northwestern-Mutual-2024-Planning-Progress-Study
[ii] “2024 401k Participant Study,” July 2024, https://www.aboutschwab.com/schwab-401k-participant-survey-2024
[iii] ‘The Retirement Crisis: Perception vs. Reality” PGIM Global Communications, July 9, 2024, https://www.pgim.com/article/retirement-crisis-perception-vs-reality