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:
“ESTIMATE YOUR RETIREMENT INCOME NEEDS. Take your annual salary. Subtract how much you save each year and pay in Social Security payroll taxes. Also subtract your annual debt payments, including your mortgage—assuming these debts will be paid off by retirement. Result: You’ll know roughly how much you will need each year for a comfortable retirement.”
I’ll take this action one step further. Once you have the rough estimate of how much annual retirement income you need, go to this calculator and figure out how much your military pension will be worth. Then go to this calculator and figure out how much Social Security you’ll get. What is left is what you need to generate with the rest of your investments. Now take that number and divide it by 0.04. That is approximately how much you need to accumulate in your investment accounts to be able to retire.
For example, let’s say you use Mr. Clements’ method and get a number of $120,000/year for a comfortable retirement. The calculators tell you that you will get about a $42,000/year military pension and $18,000/year from Social Security. That leaves $60,000/year you need to generate from your investments. Divide that by 0.04 and you get $1,500,000, which is how much you’d need in your investment accounts to retire.