Jack Dugan
Written By

Jack is a graduate of San Diego State University with a Master’s Degree concentrating in Personal Financial and Tax Planning. Jack has been named as one of San Diego’s Five Star Wealth Managers 9 times through 2010-2021*. His personal business experience has enabled him to assist executives and individuals with comprehensive financial planning that “makes [...]

Published On
October 13, 2014

The one question that comes up in every financial planning session is “How much money do I need to retire successfully?” Everyone wants to know the number. Is $1 million enough? Do I need more? Before you can determine an appropriate answer to that question you need to ask yourself, “How much money do I need today?” Most people have a hard time with this question. In order to find out how much money you need to retire, you’ll first need to create a budget.

Create a Budget

The best way to find out how much money you need today is to sit down and actually construct a budget. Track your expenses for the past 12 months and see exactly how much money you spent. This can be a daunting and sometimes discouraging task. Invariably you discover some expense that you don’t think will happen again, for example, dental work, a major health expense, car repair, vacation, home improvement, etc. (You know, kind of like life…) The best way to find out how much money you need today is to sit down and actually construct a budget. If creating a budget doesn’t sound like a task you want to undertake, I have an easy way to look at your expenses.

Retirement Readiness Guide

Analyze Your Tax Return

Pull out your tax return from last year. Take a look at line 7 on form 1040. This is your wages. Remember, this number does not include the amounts you have saved into your company-sponsored retirement plan. It does include both spouses income if you are married. Then go to line 61. This is the amount you paid in federal tax (don’t cry). Now, take line 7 and multiply by 7.5% (I am rounding). This is the amount you paid in Medicare and Social Security tax.

Next, go to your state tax return and see how much you paid in state tax. (California residents will find this information on line 64 on your 540 form). Now, take your wages on line 7 and subtract federal, state, and Medicare and Social Security taxes. The net number is how much money was available for the year. This exercise should take about five minutes and will give you tremendous insight into your current spending requirements.

Here is an example: The amount of wages on line 7 equals $95,000. The federal tax liability (line 61) was $17,000, the state tax was $6,000, and the Social Security and Medicare tax was $7,125 ($95,000 times 7.5%). The total income available was $64,875.

Wages (line 7)

Federal (line 61)

State (CA line 64)

Social Security and Medicare (wages multiplied by 7.5%)


This simple calculation gives the average W-2 employee a good idea of how much money they had available for the year. This is a good number to use when you want to maintain the same standard of living in retirement. Most of the time, people are amazed by the actual income available and aren’t sure where their money went. If you haven’t seen your savings account increase, you are probably spending it.

You may need more for retirement than you realize when thinking of the income needed in retirement, don’t expect it to be a lot less than you need now. In many cases, you’ll actually need more money because after you stop working every day is Saturday, and you have plenty of time, and hopefully good health, to enjoy your retirement years.