When you lead with “what lifestyle do you want to maintain?”, it helps ground the planning in real-world terms. Rather than chasing an arbitrary number, you're anchoring the strategy to actual spending needs. For example, someone who wants to spend $120K/year in retirement (after tax) has a very different savings target than someone aiming for $60K/year — regardless of how much either earns today.
From there, it becomes a matter of backing into the right savings and investment plan. We look at factors like:
- Time horizon: how long until retirement?
- Inflation-adjusted spending: what does that $120K look like in future dollars?
- Withdrawal strategy: how much will they need to draw down annually, and for how long?
- Tax implications: the mix of pre-tax vs. Roth vs. brokerage assets can significantly impact net spendable income.
- Other variables: like Social Security timing, healthcare costs, and potential legacy goals.
To bring this to life, take someone age 45 who wants to retire at 65 and spend the equivalent of $100K/year after tax in today’s dollars. Assuming 3% inflation, that’s about $180K/year in future dollars. Because this is after tax, assuming a 20% effective tax rate, their gross withdrawal needs to be about $225K/year. Using a 5% withdrawal rate, the portfolio required at retirement is about $4.5 million
But that number changes dramatically based on:
- How much income will come from Social Security (which might cover $30K–$40K/year)
- What portion of their assets are in Roth IRAs or brokerage accounts, where taxes are lower or nonexistent
- And whether they plan to relocate to a state with lower taxes, work part-time, or take other steps to reduce their tax burden
If this person currently has $750K saved and contributes $30K/year for the next 20 years, assuming a 7% average annual return, they could potentially reach approximately $4.1 million by retirement. This puts them close to their goal, but the exact outcome depends heavily on taxes, investment returns, and other factors.
So rather than simply asking “how do I get to $4 million?”, the more useful question is “how do I build a portfolio that supports my desired lifestyle, accounting for inflation and taxes?”
Neither MML Investors Services nor any of its subsidiaries, employees or agents are authorized to give legal or tax advice. Consult your own personal attorney, legal or tax counsel for advice on specific legal and tax matters.
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