What is "The Number" and How Does it Factor into Your Retirement?

A discussion of numbers could go many ways, and often times it will delve into the fields of mathematics, finance or in some cases space or physics. However, the discussion of "The Number" can mean only one thing; what is the amount of money that you need to be able to comfortably retire? Depending on where you live, your lifestyle, and a multitude of other variables too numerous to mention, this number can vary greatly. For the average family in the Midwest, that number could be $500,000; but for the couple living on Fifth Avenue, that number will most likely be in the millions or more.

"The Number" is very simple to define, but much harder to explain fully. As previously stated, The Number is the amount of money that you need to safely retire. The difficult part of defining that Number is that there are so many variables you must take into account when planning the rest of your life. While this is not meant to be an all inclusive list, here are a couple of the things that you need to take into account when determining your Number:

Where are you interested in retiring?
This is probably the most important question I have to ask when determining your number. The area of the country or part of the world that you choose to live in for retirement has a drastic impact on how much money you need to retire there. For places in the Midwest, the cost of living is often times cheaper than it is on either of the coasts and therefore you will spend less money on everyday goods and services, resulting in a less fiscally demanding retirement. Additionally, if you choose to retire in a location where most of the activities are ones that don't require you to pay admissions or fees (i.e. hiking, camping, fishing are all good examples of these), you will spend less money and therefore require a smaller nest egg, or number, to retire.

How much debt will you have when you retire?
Unfortunately, many people who enter into retirement will do so with some type of debt. This this may be excess credit card bills, or it could be mortgage payments that continue through retirement. In the case of excess credit card debt, you should always strive to pay that off before you retire, because it will just be more burdensome once you don't have any income coming from your job. Having a mortgage in retirement is much like having credit card debt, however if that mortgage is very close to being paid off and you plan on relocating after retirement, by downsizing in your new location, you can often eliminate any excess mortgage debt that you may have.

While this is not meant to be an all-inclusive list, these two things are of utmost importance when determining how much money you need to retire on. Not only should they be a consideration when trying to figure out what you need to save for retirement, they should be the determining factors in that discussion. In a time where the economy is slowing, you can not afford to have too small of a nest egg, as it is meant to last you for the rest of your life.