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SETTING A RETIREMENT DATE
    Although many of the elements that comprise our lifestyle do not necessarily bring us more happiness or meaning, we should also consider the trade-offs that lifestyle choices represent. The basic needs of families in the twenty-first century are food, clothing, shelter, and health care. Beyond these needs, most items fall into the wants category, wants being an indicator of your lifestyle and a variable that you can control. A frugal lifestyle would allow you to retire much earlier than a lifestyle designed to keep up with the Joneses. How big a house do you need? How often do you buy a new car? How important is dining out and entertaining? How important are designer labels and fashion? Think about your value system and what provides meaning and happiness in your life.
    Adam Smith, the father of modern economics, made this comment about lifestyles in The Wealth of Nations in 1776: “The desire for food is limited in every man by the narrow capacity of the human stomach; but the desire of the conveniences and ornaments of buildings, dress, equipage, and household furniture, seems to have no limit or certain boundary.”

LIFESTYLE CONSIDERATION: THE COST OF TRANSPORTATION
    The cost of owning an automobile is a significant expense over a lifetime. When buying an automobile, consider not only the purchase price of the vehicle itself but also the opportunity cost (investment return on money not spent). For example, compare two similar highly rated cars, one with the standard nameplate and the other in the luxury line. Buying the standard version for $10,000 less every five years results in an out-of-pocket saving of $80,000 over 40 years. The opportunity rate on those savings in a Roth IRA at 5 percent simple interest for 40 years is $279,038.

HOW TO CALCULATE YOUR NUMBER
    You are now ready to calculate your number, the principal indicator of your ability to support your life plan in retirement. There are many ways to do this calculation; some are simple, and others are very complex. Here is a three-step simple method to estimate your number without getting too detailed:
    1. Examine your current spending after taxes as a basis for your desired annual income in retirement. Don’t include items such as a child’s college cost because that will be over by the time you retire.
    2. Estimate your future sources of retirement income before investment income. If you are in your mid-50s or older, you can get a fairly accurate picture of your future Social Security benefits from the annual statements provided by the Social Security Administration.
    3. Subtract your annual spending before taxes from your future Social Security income and any pension income to find the amount of investment income needed in retirement. The only thing missing is income taxes, which are typically low for a retiree because you are no longer earning high income and you are not paying into Social Security or Medicare. A small adjustment for income taxes may be needed, but don’t overestimate that expense.
    This calculation may result in a projected annual income shortfall. That difference will have to be made up by taking a distribution from your savings. The question is how to calculate the lump sum you will need based on the annual shortfall.
    There are two ways to determine the amount you need at retirement. Financial planners consider a safe withdrawal amount from a retirement portfolio to be about 4 percent of the value per year. That is the industry standard amount that planners believe you can withdraw for the rest of your life and not worry about running out of money. Based on this standard, to find the lump sum amount you need, divide your shortfall by 4 percent (0.04) to calculate your savings goal. For example, if your annual spending, minus projected Social Security and pension benefits, is a $40,000 shortfall, then you would need investment assets of $1 million: ($40,000/0.04 = $1,000,000). Another method to find your