Calculate Your Client’s Retirement Needs

Your clients are just as interested in their retirement as you are in yours. Often they will ask you to help them plan toward their golden years. Certainly, there are very sophisticated tools that you can use, but it’s easy to calculate your or your client’s retirement needs with pencil and paper. Here’s a simple process you can use:

Line 1: Annual amount needed at retirement age in current dollars

Line 2: Number of years until retirement

Line 3: Annual expected benefits from employer plans…Pension plan 401(k)OtherSubtotal

Line 4: Annual expected benefits from personal assets…Social SecurityIRAOtherSubtotal

Line 5: Grand total– Line 3 added to Line 4

Line 6: Difference–Line 1 minus Line 5If this is positive, it’s how much extra you need each year to achieve your annual retirement needs on Line 1.

NOTE: Since most items on Lines 3 and 4 should grow at the rate of inflation or better, it’s appropriate to use today’s dollars in all lines.

If after you’ve collected the data and crunched the numbers the retirement income falls short of what you think will be needed, you’ll have to address the question of how much to accumulate each year (Line 2) to produce enough interest to make up for the shortfall.

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