What’s the Magic Number for Retirement?

First and foremost, the concept of retirement is a cultural concept and not a biblical one. In fact, the work of the Lord continues until your last days on earth; it just takes on different forms and seasons as you grow older. However, this post is not about delving into the biblical view of retirement. It is a post aimed at strictly understanding how much money it will take to transition from your professional career and move on to your next chapter with new ministries, volunteer work, and other purpose-driven work that the Lord has called you to do.

The Magic Formula for Financial Freedom

A valuable lesson passed down from my father has proven effective in planning for retirement. The magic formula he employed to gauge his readiness for retirement is as follows:

• Calculate 80% of Your Final Salary: Your retirement salary should ideally be 80% of your final income.
• Ensure Your Retirement Fund Covers 80% Salary Annually: Your retirement fund must generate the 80% salary without depleting the principal balance.
• Generate 80% Salary with Interest Only: The interest earned from your retirement fund (assume 8-10%) should cover the 80% salary.

Applying the Formula

Let’s break it down with an example:

If your final salary before retiring is $100,000, your retirement salary target would be around $80,000. To achieve this, your retirement fund should be approximately $800,000, generating an interest-only salary of $80,000 (assuming a 10% annualized return). To safeguard your principal balance, consider buffering an additional $100-$200K to account for market fluctuations. In this simplified example, you’d need about approximately $1,000,000 to fund an $80,000 retirement salary. This will ensure an inheritance for your children which you hope they do the same for their children.

Beyond the Formula

While this formula provides a foundational approach, it’s crucial to acknowledge the various factors influencing retirement planning. Considerations such as your geographical location, contributions to ministries, charities, family support, and your envisioned retirement lifestyle all play integral roles in shaping your financial roadmap.

Understanding the financial aspects of retirement involves a balance between practicality and purpose. This formula provides a starting point, but it’s essential to customize your plan based on your unique circumstances. As you embark on this journey toward financial freedom, may it align with the higher callings the Lord has set before you in your next chapter of life.

-HC

Disclaimer: Investing in the stock market carries risks, and past performance is not indicative of future results. It’s always advisable to consult with a financial advisor or do thorough research before making any investment decisions.