Before bruising Brian too much, it strikes me that his formula is useful even if perhaps a little erroneous because it sets the cogs turning. His simple formula is not intimidating and approachable… I guess he is reaching out to the frighteningly large number of people who don’t “get it” and never even consider such a formula in the first place!

Factoring in inflation and time horizon is very important, yet I think Brian simply wanted a quick wake up call to a ball-park figure. Considering the variables out there, perhaps that is all you need. Here are are a few more factors that can pop the dream bubble…”global warming quotient”, as in forget your present fuel bill as any kind of estimate; “Family”, I think Todd gets it with succinct elegance, “Kids” can be a huge factor with major possible pluses and minuses, so are we kidding ourselves to even try to come up with a more accurate estimate?; Health, as many have pointed out is probably the most significant factor… time should be measured in heart beats, yet few ever monitor this on a regular basis or let the “old ticker” provide its wisdom; “Why retire?” My grandfather was working at 85…he went in to recommend a younger employee and met up with an old work friend who saw him in great shape and offered him a part-time job! He wasn’t desperate for money, yet happened to be the kind of chap who enjoyed polishing his shoes in the morning…and watching his grandchildren laugh with the holiday overseas he could then afford to give them Then a bus ran him over and though he survived the left leg amputation, the hepatitis from the blood transfusion ended his retirement a year later. Yet I witnessed an inspirational death, which brings me on to yet another factor in the equation one might hasten to mention…”Improvement”…why should we ever “settle” for equations based on our present status, when we might really want to factor in the potential for financial growth at any age. Longfellow had a great bottom line…”Let us then be up and doing, with a heart for any fate, still achieving still pursuing, learn to labour and to wait!”

It seems to us that that’s what he must have meant only because we know better.

Assuming you have your portfolio invested in a 60/40 mix of stocks/bonds, a 4-5% withdrawal rate is considered relatively safe. If you do not take large lump sums out for random things (trips, weddings, education for grandkids, etc.), then this formula will generally allow you to die with money left over. The idea is that in your first year of retirement, you withdraw 4-5% of your portfolio. Every year after that, you increase it by inflation.

If you want to look at what your retirement goal will be for the day you retire, use the formula he gives then multiply it by (1 + inflation rate) ^ years until retirement. The way his formula works you’ll have to recalculate it every year. Once your retirement assets equal the result from the formula, you have enough assets to retire. Obviously, you should reduce your living expense need by any income you’ll be receiving in retirement (Social Security/Pensions/Part-time employment…not portfolio income).

If you had a full 20 year savings ready to go, then with interest he might be expecting you to live off the interest then you will be able to sustain a longer retirement than those 20 years. I don’t know the math to calculate withdrawl rates that you can life off of and not deplete your savings but 20 years would do a heck of a lot more than 20 total years.