15.7

15.7 is the number of the day. I read a study by Hewitt & Associates that said that when you retire, you want to make sure that you have your final annual salary x 15.7 saved. Typically Social Security will provide 4.7 times your final annual salary for the rest of your life, so your actual personal responsibility for your retirement is 11 times (15.7 minus 4.7) your final salary by yourself through your 401(k)/403(b), IRAs, stock/bond portfolios, etc. If you’re fortunate enough to have a pension, you can diminish your personal responsibility for the 11 times your final annual salary by the amount you will be receiving from your pension.



I love financial planning. Over the past several years, I have calculated our retirement needs several different ways. I have done it with Excel (many vague assumptions), retirement calculators on a number of websites, and I always get about the same answer. Then when I compare this 15.7 figure (and my 11.0 personal estimated contribution), I get the same answer yet again! With a reasonable amount of confidence, barring that anything in our life changes substantially, I know how much our final “nest egg” target is.



The problem is that we are sooooo far away from it. We contribute the maximum we can, but if you’ve taken even an Introduction to Finance course, you know that the real increase is over time with compounding. Just letting that money sit for years and even decades. It takes a long time to get anywhere substantial. Sure, bumping up contributions do help, but being that we’re 10 years into this saving for retirement “thang,” the real payday for our retirement accounts is going to be that compound interest in 20 more years.



Here are some things we’d like to do with regard to our retirement:

- Pay off the house before retirement. We did it once, we can do it again!

- I’d like to retire by 55; preferably 52. This is challenging because it costs so much more to retire at 52 vs. 67. I’m not saying I won’t work after 52; it’s just that I hope to not HAVE to work. I’d probably go nuts without working to some extent, but I’d want to work just enough to pay my portion of the expenses.

- Pay for a vast majority, if not all, of Miss J’s college. She has a nice sum in her 529 plan already (about the tuition for 4 years at a state school). That’s the advantage of being DINKs for 8 years before she was born; we could save quite a bit for her. Now if she chooses to go to Yale and doesn’t get any scholarships, well, Miss J is going to have to cough up her own chunk of change. But there should be enough in there by the time she goes to college to pay for 4 years at a state school (hopefully including room & board as well as tuition).

- Personally I’d like to live off the interest that our investments generate and never tap into the principal. Wishful thinking, huh? Retire at 52 AND not touch the principal? Crazy, I know.

So we know much we'll need. We know approximately what our lifestyle will be. We just need to get there, and really all we need to do is continue to diligently save and hope the economy doesn't go in the crapper for an extended amount of time (because that will definitely impact our retirement projections).

If you haven't started planning for retirement, I encourage you do to so. If you have, congrats and keep it up!