1. What is the IRA Magic Number?

The IRA Magic Number is a simple calculation that helps determine how much you need to save for retirement based on your desired annual withdrawal amount. It represents the multiple of your annual expenses you need to have saved.

2. How Does the Calculator Work?

The calculator uses the Magic Number formula:

Where:

• Savings Needed — Total amount you want to have saved for retirement
• Annual Withdrawal — Amount you plan to withdraw each year during retirement

Explanation: The magic number tells you how many years your savings would last if you withdrew the same amount each year.

3. Importance of Magic Number Calculation

Details: This calculation helps in retirement planning by providing a quick estimate of whether your current savings can support your desired retirement lifestyle.

4. Using the Calculator

Tips: Enter your total desired retirement savings and your planned annual withdrawal amount. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good magic number?
A: Typically, 25-30 is considered good, based on the 4% withdrawal rule (1/0.04 = 25).

Q2: Does this account for investment returns?
A: No, this is a simple calculation that assumes zero real returns. For more accurate planning, consider expected returns.

Q3: How does inflation affect this?
A: The calculation should use today's dollars for both savings and withdrawals, or future inflated dollars for both.

Q4: What about taxes in retirement?
A: Your annual withdrawal amount should account for any taxes you'll need to pay on withdrawals.

Q5: Is this only for IRAs?
A: No, it can be used for any retirement savings, though it's commonly referred to in IRA discussions.