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The One Retirement Number You Need To Know

The One Retirement Number You Need To Know

When it comes to calculating how much you’ll need for retirement, numbers are hard, but concepts are easy. If we can put into words what we need the numbers to tell us, the process is much easier.

When I saw Prof. Robert Merton at a recent PSCA conference, he presented a compelling program on retirement saving. He discussed a lot of numbers, which he’s really good at, since he won a Nobel Prize in Economics and teaches finance at MIT. But one concept stood out: Funded Retirement Ratio.

Before you start pulling out your hair one strand at a time, bear with me on this concept. It tells you, based on how much you’re saving, rate of return and when you plan to retire, if you’re likely to have enough money.

Professor Robert C. Merton. (STUART CAHILL/AFP/Getty Images)

Can a single number tell you so much? Well, yes, although there are plenty of variables such as how much is in your retirement kitty now, your expected life expectancy and projecting a realistic rate of return. It also depends on how you’re investing. If you’re investing everything in bonds and cash, you’re not going to have enough money.

Then there’s the volatility of returns. Stocks can drop as much a 40% in a year. Treasury bonds aren’t beating inflation. No investment…

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