What’s Your Magic Number? By Brad Thomas, Editor, Wide Moat Daily Editor’s Note: Today, we’re sharing a Brad Thomas original. Below, Brad will share the mindset every investor should have as they look toward retirement. This essay, originally published in April of this year, has been lightly edited from its original version.
What’s your magic number? That is, how much money do you think you’ll need to have a comfortable retirement? According to a recent Northwestern Mutual survey, the average American thinks it’ll take a hefty $1.46 million. If you think that’s unrealistic, consider this… The same study found that the average amount people had in their retirement account was just $88,400… Everybody dreams of a comfortable retirement. But sadly, for most people, that dream will never become a reality. Here at Wide Moat Daily, we want to help you build up enough reliable income to be able to enjoy your retirement. So, you can have the freedom to do what you want without worrying about pinching pennies. Your retirement magic number doesn’t have to be out of reach. Even if you start today, you can begin to bridge the gap between where you are and where you want to be. Today, I’ll show you what it takes to get on track for your golden years, and why you should act today to protect your retirement. Get On Track to Retire – Today $88,400 may sound like a lot of money. But retirement experts at Fidelity Investments say it’s not nearly enough. It estimates you should have 8 to 10 times your annual salary saved up by retirement. For middle class folks making $50,000 a year, that means accumulating $400,000 to $500,000 in savings. That’s nearly 5 times what most people actually have. One popular retirement strategy is the “4% rule.” It suggests that retirees can spend 4% of their retirement savings each year. But if you were to follow the 4% withdrawal rule with just $88,400 in the bank, you could only take out $3,536 a year. I don’t know about you, but that doesn’t sound like a comfortable retirement to me. A recent study by investment management group Vanguard shows that only workers in the top 5% of incomes have enough saved to cover their retirement needs. 
But even this study is overly optimistic. It assumes that the bottom 25% will get most of their retirement income from Social Security. Meanwhile, the top 5% are getting more than 70% of their retirement income from savings and investments. If you think you can rely on Social Security, think again. The trust fund for those payments is expected to be depleted by 2034. After that, benefits for everyone would have to be reduced by 20% to 25%. The sad truth is that many people may have to keep working past retirement age to make ends meet. Now, I don’t tell you all this to alarm you or tell you to throw your arms up in hopelessness. In fact, I’m here to tell you the opposite. All hope is not lost… if you have the right plan to follow. The best way to beat the odds? Start saving more and invest as soon as you can. The Bureau of Economic Analysis says that Americans are saving just 3.6% of their income. That’s well below the recommended 10% to 15% savings rate to prepare for retirement. I get it. Saving money is tough, especially when inflation is making everything more expensive. But every bit counts. And you should start as soon as you can. Because aside from saving money, the most important ingredient in growing your retirement nest egg is time. The earlier you start saving, the more time your investments will have to compound, building your financial security. Let’s say you put away $10,000 when you’re 60 years old. If it grows by 7% per year, then after five years you’ll have about $14,000 when you’re ready to retire at 65. But if you’d invested that same $10,000 when you were 55, then 10 years of 7% compounding would turn it into $19,700 by the time you hit 65. Those extra five years increased your nest egg by 40%. Now imagine if you had started at age 50… That $10,000 would be worth $27,600 by the time you retire. Those extra 10 years nearly doubled the amount of money you would have at retirement. That’s the magic of compounding – money grows exponentially faster over time. The earlier you start, the more your money gets to grow. So where is a good place to start? A Great Investment to Start Growing Your Income Invest your money in companies that pay a growing dividend. These are profitable, well-run businesses that have proven successful in good times and bad. The ever-increasing income stream they provide helps you sleep well at night and not worry if their stock prices temporarily fall during a bear market. One of my favorite dividend payers is Realty Income (O). It pays a dividend check every month. And it’s been increasing its dividend every year since it went public in 1994. That’s three decades – and three recessions – with nonstop dividend growth. That’s why, in the spirit of full disclosure, I’ve owned shares for years. What if you’re short on time and need to build up a nest egg fast? To meet your goals, you may have to save more and invest in companies that can produce higher returns. That’s one of our missions here at Wide Moat Research. Don’t put off saving for retirement… The sooner you start, the better your chances of reaching financial freedom. Regards, Brad Thomas
Editor, Wide Moat Daily | 
