The method I use for myself is very simple. To calculate my target retirement asset amount, I multiply the total annual amount I need to spend in order to preserve my standard of living by the number of years I plan to be retired for.
In equations, my target amount is S x (DA-RA), where S = annual spending requirement, RA = my retirement age, and DA = the age at which I want my savings to run out. Choosing DA is tricky. If you decide to have enough until you are 85, you are taking on real risk that you’ll be digging for food in a dumpster at age 86, should you live that long. If you decide to have enough until you are 100, you are taking on a lot less risk of outliving your assets, but you are going to have to retire later.
Which assets do I include? I need to be able to liquidate them over time without affecting my standard of living. So I don’t include any home I live in.
I don’t count future investment returns. Any investment return needs to be reduced for expenses, taxes, and inflation. Staying ahead of all those by a healthy margin would require taking on a healthy dose of risk, with a much higher probability of premature dumpster-diving should the risks not pan out.
