Critical Capital is the lump sum a client must accumulate to generate their desired retirement income indefinitely — without depleting principal. Social Security or pension income reduces the portfolio income required, directly lowering the target.
Critical Capital = (Desired Income − SS/Pension) ÷ (Return Rate − Inflation Rate)
Example: ($100,000 − $24,000 SS) ÷ (6% − 2%) = $1,900,000 needed.
Goals & Assumptions
Desired Annual Retirement Income Total lifestyle need, today's dollars
$
Social Security Income Expected monthly SS benefit at retirement
$
/mo
Pension Income Expected monthly pension at retirement
$
/mo
Income Needed from Portfolio After SS & pension offset
$
100,000
/yr
Expected Annual Investment Return Conservative: 5–6%
%
Expected Annual Inflation Rate Historical avg: 2–3%
%
Current Situation
Current Retirement Savings
$
Monthly Contributions
$
Years Until Retirement
years
Critical Capital Target
$2,857,143
$100,000/yr ÷ (6.00% − 2.50%) = $2,857,143
Real Rate of Return
Nominal Return Rate
6.00%
Inflation Rate
2.50%
Real Rate (Return − Inflation)
3.50%
Retirement Readiness Projection
Current savings projected value at retirement Grows at nominal return rate
$
1,612,537
Value of monthly contributions at retirement Future value of annuity
$
1,888,454
Total Projected at Retirement
$
3,500,991
Gap Analysis
Critical Capital Target
$
2,857,143
Surplus / Shortfall
$
+643,848
Progress
$0
0% funded
$2,857,143 target
Monthly Income This Provides
$8,333
portfolio + SS/pension combined
Monthly Savings Needed
—
to reach target with no current savings
Income Your Plan Generates
$122,534
annual at retirement (real rate)
Elder Care Costs to Consider
Nursing Home (private room, 2023 avg)
$
116,796
/yrIn-Home Care (40 hrs/wk, 2023 avg)
$
75,504
/yrAssisted Living (2023 avg)
$
64,200
/yrAdult Day Health Care (2023 avg)
$
24,696
/yr