The New Savage Number: How Much Money Do You Really Need to Retire?

Chapter 5. SAVING UP, DRAWING DOWN

There are two key stages of the retirement planning process—accumulation and distribution.

During the accumulation phase, you're concerned about whether you're saving enough money and choosing the appropriate investment to reach your goals. You may even need help prioritizing those goals. Retirement should be a top priority, but you may also be saving for college for your children, or for a down payment on a home. With different goals, different time horizons, and different types of investment accounts, the process can be complicated.

Then, during the withdrawal phase, you need to know not only how much money you can take out every month or year, but how the remainder should be invested. Suddenly, your risk tolerance may change, as you realize that in retirement you will no longer be contributing new money to your plan, but only hoping to stretch your assets to cover your retirement lifestyle—and lifetime. Once again, you need to set priorities, either for lifetime income or to have money left over for an estate.

The two phases are complementary parts of the same project: your retirement. And, as you'll see, there is no fixed moment in time when you make the switch from one to the other. You'll always have investments—assets accumulating—even as you start to withdraw your money for living expenses.

The twin virtues—saving and investing—are the cornerstone of your retirement planning and retirement living. The first step is the discipline to save. The ...