Calculate Your Required Nest Egg

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Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get (free) on his blog Humble Dollar. Here is one piece of advice from his site:

CALCULATE YOUR REQUIRED NEST EGG. Once retired, you’ll likely have Social Security and perhaps a traditional employer pension. How much additional income will you need for a comfortable retirement? This money will need to come from savings. Take your desired portfolio income, multiply by 25—and you’ll have an estimate for how big a nest egg you need.”

If you stay in for 20 years or more, you’ll have a pension. That pension is very valuable and will greatly reduce the size of your required nest egg. Let’s say you think you need $120,000 per year to retire and you think that between your military pension and Social Security you’ll net $60,000 per year. That leaves another $60,000 you’ll need to generate from your retirement nest egg.

Using Mr. Clements rule above, just take the $60,000 and multiply it by 25, showing that you need to save approximately $1,500,000 to generate the extra $60,000 of retirement income.

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