Imagine saving to buy your first home. You might talk to a banker, or a real estate agent, to get an idea of what price point is right for you. Based on that you can pretty easily determine how much you need to save for the down payment. How about a vacation? You could consult a travel agent, or do some research on Expedia, and determine pretty quickly what you need to set aside to make that happen.
How about retirement? Everyone is saving for retirement, or should be. At least we talk about it a lot. So what is your number? This time it gets trickier. You can scour the web for a free calculator, punch in your data and it will spit out a number. Is it right? Depends upon the assumptions behind the model. Which is why you will see a different number for every model created. No two will have the same assumptions. When will you retire? How much will you need to spend in retirement? How long will you live? What kind of drawdown will you be comfortable with? How much can you earn on your investments? All you can do is give your best, most reasonable guess. Truth is, nobody knows for sure. Nevertheless, it is still a worthwhile exercise.
Saving for retirement is like a long hike, towards a moving target that we cannot see. If we don’t stop periodically to check our progress and realign ourselves to the map, we can easily lose focus and progress slows down. We don’t need high-powered math to calibrate our compass and stay on track. The attached article from the Wall Street Journal offers several simple tools to do just that when it comes to our retirement savings.