How Do I Know When I Can Retire?


Four Steps to Develop a Retirement Strategy

In as Little as 30 Minutes

It’s good to see that you’re here for answers to the BIG question, “how do I know when I can retire?” Colorado Retirement Association can help you determine this answer. We call this your “Point of Choice” or the minimum amount of savings you will need to adequately replace your income in retirement.

Generally, setting your Point of Choice at 10 times your final annual salary works for most people. To achieve this, experts recommend contributing between 15% – 20% of your income towards retirement. This includes the contributions made by you and your employer, combined.

The graph below illustrates how many years it will take to save 10 times your salary using the following assumptions:

  1. You are starting at a balance of $0
  2. You earn a 6% rate-of-return
  3. You make the same salary throughout your career

Graph of How Long It Takes to Save 10 Times Your Salary Based on Retirement Contributions averaging a 6% rate of return

As you can see, contributing the recommended 15% – 20% significantly reduces the amount of time you need to work to reach your Point of Choice.

If you’re here for the short answer to how much you should save for retirement, this is it. You can complete one of the forms linked below and return it to your employer to increase your 457(b) contributions. If you stop reading here, please set up a Retirement Counseling session with your CRA Client Services Manager for guidance on creating a retirement strategy customized to your needs.

If you want a more in-depth, customized answer to what YOUR Point of Choice is and how much YOU should be saving to achieve YOUR retirement goal, continue reading the rest of this article. This is especially true if you meet one of the following criteria that can greatly influence your retirement income needs.

  • Your salary is greater than $100,000 or less than $40,000
  • You plan to retire before Full Retirement Age (66/67) – Most common among Public Safety Officers
  • You do not pay into Social Security
  • You will have additional sources of significant retirement income such as a defined benefit pension, disability payments, or outside investments like real estate income, profit sharing, or dividends.

Retirement Planning Resources

Planning My Long Comfortable Secure Best Retirement

Congratulations! As a CRA participant, you are already more prepared for retirement than many other Americans simply by having established a retirement account (See 2020 Census Statistics). Choosing to read this article means you are actively taking control of your retirement and setting yourself up for success. By the end of this article, you will have the information and resources to develop retirement saving strategy based on the answers to these questions:

  1. What is my Point of Choice?
  2. How long will I need to work & save for retirement?
    (Growing Your Investment Calculator)
  3. How long will my savings last in retirement?
    (Withdrawals in Retirement Calculator)
  4. How do I meet my retirement goal?
    457(b) Enrollment Form – For participants not yet making voluntary contributions
    457(b) Paycheck Contribution Election Form – For participants with an existing 457(b) account who want to increase current contributions
    CRA Budget Worksheet – Examine, evaluate, and reprioritized your expenses

Note: If you have a spouse or partner with retirement savings, include their information in the calculators provided as well. If you calculate your household’s expenses and only your retirement savings, you may be underestimating your financial security.

And before we begin, a disclaimer:

These calculators are for information purposes only and are not intended to provide investment, legal, tax or accounting advice, nor are they intended to indicate the performance, availability or applicability of any product or service. The accuracy of these and their applicability to your circumstances is not guaranteed. You may wish to consult an appropriate and qualified advisor about your unique situation. These calculators are provided by EVERFI. EVERFI is not affiliated with this site’s sponsor, owner or any affiliate thereof. You should always consult with your financial planner, attorney and/or tax advisor as needed. Results and analyses are based exclusively on information provided by you and no assumptions are made as to your particular situation. Projection is hypothetical in nature and not predications or guarantees. All investments carry a degree of risk and past performance is not a guarantee of future results. Asset allocation and diversification do not ensure a profit and do not protect against loss in declining markets.

What is My Point of Choice?

Earlier in this article, we generalized the Point of Choice as 10 times your final annual income. To determine YOUR Point of Choice, you need to answer the questions included below. The answers to many of these questions will be estimates, but that’s okay. Your Point of Choice is just a benchmark and the exact numbers will change over the course of your career as you earn more money, pay off debts, and encounter new expenses.

  • What is my final annual salary?
  • How much is my monthly retirement budget?
  • At what age do I plan to retire?
  • What is my expected Social Security Benefit?
  • How long will I spend in retirement?
  • Will I have any additional sources of retirement income?

The graph provided illustrates several Points of Choice based on common answers to these questions. You will determine your custom Point of Choice using the calculators included later in this article, however, this chart offers an initial baseline estimate.

Point of Choice Based on Income

Point of Choice Graph

To create this graph, we made a few initial assumptions:

  1. Your retirement income is equal to 75% of your final annual salary.
    For example, if your gross pay is $4000 per month, you’ll withdraw $3000 from your retirement each month.
  2. You will start receiving Social Security Income at Full Retirement Age (67 or 66 if born before 1960).
    If you will not receive full Social Security benefits, your Point of Choice will be higher than what is indicated on this graph. Social Security replaces a smaller percentage of your income the more money that you make.

How to Read the Graph

  1. Find your annual income/salary along the bottom axis.
    If you can estimate what your salary will be when you retire, use that salary instead.
  2. Estimate how long your retirement will be.
    The blue and orange lines assume you will retire at Full Retirement Age and you will need your retirement income to last for either 25 years (blue/bottom) or 30 years (orange/middle). The green/top line, describes how much someone retiring at age 50, such as a Public Safety Officer,  would need to have saved to fund a 42-year retirement (17 years without Social Security, 25 years with Social Security).
  3. Multiply the number by your salary to find your Point of Choice.
    For example, someone who makes $60,000 per year would need to save at least 8.5 times their salary or $510,000 to fund a 30-year retirement.

How Long Will I Need to Work & Save?

Now that you have an approximation for your Point of Choice, you are going to use the Growing Your Investment Calculator to see how long it will take to reach that goal based on your current savings rate. The calculator has pre-filled fields, start replacing these fields with your information. A description of what to put into each field has been included below. Again, if you have a spouse or partner with retirement savings, don’t forget to include your their information as well.

Growing Your Investment CalculatorUnder the “Your initial investment” section:

AMOUNT: My current retirement savings.
Include the savings in your CRA account(s) and any other retirement savings you may have from previous employers or personal savings, like an IRA. Do not include defined benefit pension amounts at this time.

INVESTMENT PERIOD: The number of years you plan to work.
If you plan to retire at Social Security FRA, then move the slider to the number of years until you are either 66 or 67.

EXPECTED RATE OF RETURN: Move the slider down to 6%.
This is a conservative estimate for your investment growth, assuming you are appropriately invested throughout your career. For historical reference, during the 30 years from 1992 to 2021, the stock market’s average return was 9.89% (7.31% adjusted for inflation).

Under the “Add a recurring investment” section:

AMOUNT: The amount you and your employer contribute to your retirement each pay period.
See your paystub for this number.

FREQUENCY: How often your pay periods occur.

Example of Growing Your Investment Graph

As you input your information into the calculator, the graph will change. When you are done, you should see an approximation of how much money you can expect to have saved at retirement based on your current savings rate and desired retirement age.

Is it more, less, or about the same as your estimated Point of Choice? Keep this number in mind, we are going to use it in the next section.

Don’t exit from this calculator, you may return to it to make some adjustments once you have the full picture of your current retirement projection.

How Long Will My Savings Last in Retirement?

At this point you have two important pieces of information: your estimated Point of Choice and your estimated Savings at Retirement. Hopefully, the second number is higher than the first, but if not, don’t panic. We’re making a plan, not delivering bad news. Let’s check out the Withdrawals in Retirement Calculator to see how long your current estimated savings will last.

Withdrawals in Retirement CalculatorEXPECTED SAVINGS AT RETIREMENT: Copy the “Total Earnings” number from the “Growing Your Investment” calculator into this field.
This is your estimated savings at retirement and it will be [one of] the primary sources of your retirement income.

EXPECTED RATE OF RETURN: Move the slider down to 3%. 
Just like before, this is a conservative estimate.

DESIRED MONTHLY INCOME IN RETIREMENT: The estimated amount of money you need on a monthly basis during your retirement.
If you completed the CRA Budget Worksheet, you should have an idea of how much money you will need each month. This amount may change month-to-month, so you can use an average. If you’re not sure, try 75%-80% of your current gross salary.

EXPECTED MONTHLY SOCIAL SECURITY BENEFIT: If you will receive income from Social Security, input that amount.
If you’re not sure how much that will be, you can use the Social Security Administration’s Benefit Calculator to approximate your benefit.

EXPECTED MONTHLY INCOME FROM OTHER SOURCES: Include any income you will receive in retirement that is not part of your “retirement savings accounts.”
This may include defined benefit pension(s) from previous employer(s), disability payments, rental income, etc.

Example Graph of Withdrawal in RetirementHow long does it look like your retirement savings will last? Is it long enough?

If it is, great! You may still want to reevaluate your retirement plans. Look into retiring early and take advantage of healthiest and most mobile part of your retirement. Alternatively, you could further increase contributions in anticipation of treating yourself to a retirement gift. Maybe you want to buy the boat you’d never be able to enjoy while you’re working, remodel the house you’re going to be spending more time in, or finally take the vacation you’ve been putting off. 

If your retirement outlook isn’t as promising as you had hoped, don’t worry too much. You have several opportunities to improve the quality of your retirement. We’ll walk through your options together. Keep this calculator open, you will make adjustments in the next section.

How Will I Meet My Retirement Goal?

If you don’t like what you see with your current savings rate and timeline, the good news is that neither is set in stone. As you consider each of the following options to improve your retirement, return to the “Growing Your Investment” and “Withdrawals in Retirement” calculators, input the changes, and design your new retirement savings strategy.

As we mentioned at the beginning of this article, experts recommend saving between 15% – 20% of your annual pay for retirement. If you’re contributing less than this recommendation, make this is your primary goal.

First, if you have not enrolled in your 457(b) plan, complete the enrollment form below and return it to your employer today. Even if you only contribute $25 per month to start, you’re making important progress towards retirement.

Additionally, if your employer offers a discretionary match that you aren’t currently taking advantage of, take the free money. Meeting your employer’s match is the quickest way to double your contributions and improve your retirement outlook.

Then, if you have further availability to increase your retirement contributions, we encourage you to do so. You may need to increase contributions over time. Two strategies are to set up a recurring calendar reminder to increase contributions 1% every 6 or 12 months; and/or contribute 25% – 50% of any pay raise to your retirement.

Start saving more, Today!

Complete one of the forms linked below and return it to your employer.

As an example, if on the “Growing Your Investment” calculator, you set your “Investment Period” (how long until you plan to retire) for 12 years, increase it to 15 years and see what 3 additional years of growth can do for you.

Working longer improves your retirement outlook on three levels. First, you are contributing additional funds to retirement during that time; and, those contributions are probably larger because you are at the pinnacle of your career. Second, you’re allowing your existing investments to grow for longer before withdrawing anything. And finally, though it may be morbid to consider, you are shortening the amount of time you need to fund your retirement.

As the modern philosopher, Mick Jagger, remarked, “You can’t always get what you want. But, if you try, sometimes, you might find, you get what you need.”

The less income you need each month, the less you will need to have saved at retirement. Review your Budget Worksheet and trim it down. Plug in the new monthly budget to the “Withdrawals in Retirement” calculator and see how much longer your retirement will last. You can also take the amount you’re saving with your tighter budget and add it to your contributions in the “Growing Your Investment” calculator as a double whammy to improving your retirement outlook.

When thinking about your retirement budget, consider how your needs and expenses might change in retirement. For example, your housing costs. Will you still be paying a mortgage or rent? If you own a home, will you be looking to downsize? That home equity might provide you with an initial lump sum of money to live on while you let your savings continue to grow. A smaller home may also decrease your utilities and property tax costs. If you choose to sell your home and rent, you can more easily budget monthly expenses since you won’t be responsible for the cost of maintenance and repairs.

If you will inherit any property or have the opportunity to pursue real estate investments, you may have additional rental income in retirement beyond what you have considered.

On the other hand, some individuals may choose to work a part-time retirement job. Working in retirement may be necessary to bridge an income gap but a healthy work environment can also provide stimulating social interaction and activity that many retirees lack elsewhere.

If you can’t invest as much as you need to right now, here are a few goal-setting tips.

Allocate a Portion of Any Pay Increase to Retirement:
If you’re meeting your needs and you get a raise, take 25% – 50% of that raise and increase your contributions.

Pay Off Long-term Debts Starting with the Highest Interest Rate:
Paying the minimum on all amounts due and then the most you can afford on the debt with the highest interest rate is called the Avalanche method of repayment and it is the quickest and most cost-effective way to pay off a debt. Use this Debt Payoff Calculator to help you create a repayment strategy.

Like in the previous suggestion, when you pay off a debt, allocate 25% – 50% of that payment to your retirement and apply the rest to paying off your next highest interest rate debt or avoiding/reducing future debts. For example, if you pay off a car loan, take a portion of that payment amount and being saving for a down payment on your next vehicle or other major expense.

Meet with a CRA Retirement Counselor
If you want some professional guidance on how to best save for your retirement, set up an appointment with one of our Client Services Managers by clicking the calendar icon below. They can help you create a Retirement Savings Strategy, especially if you provide them with the calculations you’ve completed today.

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