By: Lyn Alden

One of the most common and difficult steps of planning for retirement is determining whether you’re on track or not. Are you saving enough?

This is where meeting with a personal financial planner can be helpful, especially if you have a complex situation involving multiple asset types, accounts, pensions, family considerations, and so forth.

But the starting point is to ask yourself how much income you will need in retirement to maintain the lifestyle that you’re targeting. Once you know that figure, you can quickly extrapolate how much income-producing assets you’ll need.

For example, here’s a chart I put together a year ago showing how much annual income various portfolio sizes can produce based on the percent that you withdraw each year:

annual withdrawal for income |

Green columns are fairly safe- if you withdraw 3-4% per year, and achieve a reasonable rate of return in the process, your money can last a very long time, and perhaps indefinitely. But if you withdraw larger amounts, and start entering yellow or red territory, the chance of running down your portfolio increases.

For example, a $500,000 portfolio can produce $15,000 to $20,000 in income per year by withdrawing just 3-4% of it per year. When you add a pension income on top of that, and own a mortgage-free home by that point, that’s a substantial amount of retirement income and it’ll go a long way.

Once you know how much income and assets you’ll need in retirement, the next step is determining how you might get there.

Here’s another chart I made, which shows how much wealth you can build in a 25-year period with a given monthly investment (on the y axis) and a given rate of return (on the x axis):

The chart is inflation-adjusted at 2.5% per year. So, it shows the actual purchasing power that you’ll likely have if you make a certain monthly investment and average a certain long-term rate of return on your money. Figures that reach over $1 million are highlighted in green.

For example, if you contribute $1,000 per month into your TSP (including agency matching), and earn a 6% average rate of return on your balance per year, then you’ll have $835,000 after 25 years. But, due to inflation at an assumed 2.5% rate per year, this will be worth $451,000 in today’s dollars.

For reference, the U.S. Federal Reserve targets 2% inflation per year, and lately we’ve been at or under that level. But it’s impossible to predict for sure what inflation rates will be going forward.

The 2018 contribution limits for the TSP will be $18,500 per year, which averages to $1,541 per month. Depending on your salary, agency matching could bring your combined monthly contribution to over $2,000. By also investing in external accounts like a Roth IRA or taxable account, or buying rental properties, you can potentially invest enough per month to reach the highest levels on that chart.

The earlier you start, the more time your money has to snowball into a seven-figure amount.

Lyn Alden is a financial writer and an engineer, and holds a bachelor’s in engineering and a master’s in engineering management, with a focus on financial modeling and resource management. She specializes in analyzing and presenting financial data. Her investment work can be found on