Goal Setting Methodology

[james.hendrickson]

Guys

I'm strongly considering upping my retirement goals from 4 million to a larger figure.

When you all are setting your goals - do you have a good methodology for doing effective goal setting?

[disneysteve]

Your retirement savings goal should be based on your predicted income needs.

If you subscribe to the 4% spending figure from the Trinity study, $4 million would give you $160,000/yr in year one, adjusted each subsequent year for inflation, plus Social Security whenever you collect that (and any pension if applicable, and any other sources of income like rental income, for example).

How did you come up with $4 million and why are you considering increasing that?

[Jluke]

I max out the Roth always and 401k as much as possible.

lately I’ve been thinking I won’t know if I did it right until it’s too late.

Saying you are changing your goal to greater than 4 million seems strange to me given that in the retirement count up thread you are at 21k. Maybe you have other undisclosed assets.

[bjl584]

Where did $4 million come from, and what is the new goal?
How did you arrive at it?

Anytime you want to increase income, investments, etc. you will have to take some action to do it.
Beyond owing various websites, I don't know what your portfolio looks like, where you can branch out, or what you can scale up.
You'll have to analyze all that.

[kork13]

"Start with the end in mind."

Basically, exactly what Steve said. Back up into your goal number based on what you expect to want/need.

I would also say that if you're more than 10 years out from retirement, you probably shouldn't get too wrapped up around any particular number. Just save what you can manage. When you find that you have enough to meet your needs, you're free to retire at will.

[ua_guy]

"SMART" goals. What are SMART goals? The SMART in SMART goals stands for Specific, Measurable, Achievable, Relevant, and Time-Bound. Defining these parameters as they pertain to your goal helps ensure that your objectives are attainable within a certain time frame.

This is something that is talked about in my line of work often which is why I'm regurgitating it here. It also applies to retirement. Retirement is pretty far off for me still, so I look at annual goals for savings, and setting goals for the steps to achieve those things. I don't always write them down, but they are in the back of my mind when I'm handling my finances.

I'd also be curious to know the story behind the $4M number. Mostly because "how much" has been a frequent subject of discussion in our household as well. It's something my husband and I do not agree on.

[LivingAlmostLarge]

I fall more in the jluke category. The numbers seem unreal to me. Paper play money. I know they are real but at the same time they aren't. UA_Guy brings up a way to reasonably do it.

I have people all the time say $x by this date assuming this return. I'm too lazy to really think about it much. I do probably need the excel spreadsheet but personally I have a gut handle on my savings and just looking at it and predicting it. I also think about big picture at spending. More than the amount if you have a plan on how to bridge gaps or years and spending, and can calculate the taxes on it with some variability for say healthcare, I think people need less than they think.

More than % you can always work backwards from the raw numbers. I need $40k for 10 years from age 50-60 until I can acess my 401k. At age 45 my 401k is $x. I project it to be $x at age 50 with contributions and you track it. Then at age 60 i predict it will be $X. This will bridge the gap until age 70 when SS will kick in and I'll only need $20k. Then I will need $400k to cover $20k from age 70-90.

Stuff like that. The rate of return is hard because inflation eats into an 8% return.

[kork13]

The rate of return is hard because inflation eats into an 8% return.

This is why I make projections as just being above inflation. It allows me to use today's dollars (so that it feels less like "monopoly money", and removes the unknown of inflation. I just estimate numbers with growth of 4%-6%, and call it "above inflation." We might actually see 6%-10% growth in a given year ... But assuming away inflation makes things easier.

[srblanco7]

This is why I make projections as just being above inflation. It allows me to use today's dollars (so that it feels less like "monopoly money", and removes the unknown of inflation. I just estimate numbers with growth of 4%-6%, and call it "above inflation." We might actually see 6%-10% growth in a given year ... But assuming away inflation makes things easier.

I was (am) an excel "nerd". I used the FV function in excel to model different variables - including conservative (say 5%) to moderate (say 7%) investment return rates, contribution amounts, etc.

This was my impetus to focus on finding ways to "save more", because it was one of the few things that was in my control.

[disneysteve]

james.hendrickson Any follow up here? You've gotten some good answers. We're curious where your number came from and why you think it needs to change?