Sarah has big goals for her retirement.

She’s taken some steps to set up her finances. She’s a regular saver, and her only real debt is a mortgage and a car loan.

No bad debt is a great start.

At 39 and with no children, Sarah has her eyes on her future.

“I think I’d like to have about $5 million when I retire,” she said. “I currently travel for pleasure, large trips to scuba dive and I want to make sure I can do that and not have to do much work.”

Sarah has saved $317,100 to her 401(k), $17,600 in IRAs and she has $7,350 in cash accounts.

NJMoneyHelp.com asked Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton, to help Sarah examine and plan for her $5 million goal.

“Generally, the first thing I want to do is make sure that this is a reasonable goal and will accomplish what she is looking to do,” Lynch said.

THE GOAL

Lynch said that while goal of having $5 million at retirement is admirable, it’s really just a number Sarah pulled out of the air.

What she really wants is to make sure she has enough income every year after she stops working.

So Lynch asked her.

“Her goal is to have around $100,000 to $150,000 per year in taxable income — it’s a very big range with a 50 percent variation,” Lynch said. “So we need to do a few things here to see if any of this is realistic.”

The first step is to think about a budget and determine what you think you will want to spend each year in today’s dollars when you’re retired.

Lynch said a simple budget sheet will help you see if your anticipated retirement expenses are reasonable.

Sarah completed such a sheet, which found she would spend around $6,000 per month. That included an annual mortgage payment of $18,000 that Lynch said will probably be paid off by then.

Looking at those numbers, and adding expected state and federal taxes, he said she would need about $80,000 to $90,000 a year, pre-tax.

The conclusion? Sarah’s potential target for retirement income of $80,000 to $90,000 a year is substantially lower than what she assumed she’s need.

“Assuming that her new budget is correct, it means that this is 10 percent to almost 50 percent less than what she thought,” Lynch said.

But then, there’s inflation.

“We do need to increase all these numbers for inflation, which historically is around 4 percent per year,” Lynch said.

Lynch used the “Rule of 72” to make some projections.

Investors typically use this rule to get a rough estimate of how long it might take to double a portfolio. You’d divide 72 by the annual interest rate you expect, and you’ll get the number of years it would take for your money to double. For example, if you assume an 8 percent interest rate, it will take nine years to double your money (72 divided by 8 = 9 years)

Lynch used the same formula to see the value of Sarah’s money over time. He divided the 4 percent inflation rate into 72, and the result was that in 18 years, Sarah’s money will be worth about half of what it is today, Lynch said.

That means at age 67, the $90,000 in today’s dollars, after inflation, needs to be $180,000 just to stay equal to her expected spending.

To get to that number, Lynch said, Sarah would need approximately $4 to $5 million.

THE STARTING POINT

What Sarah has already accumulated is a great start.

She’s saving the maximum to her 401(k), and she benefits from a 6 percent employer match. And, Lynch said, her investment options are of the low-cost variety, so that’s another plus.

One item to highlight is that Sarah owns some company stock in her 401(k).

“This gives her the option when she retires to take advantage of a very nice tax strategy called Net Unrealized Appreciation,” he said. “This allows her to get the stock out of the plan with the gain being subject to capital gains rates, not ordinary income tax rates.”

Lynch calls this a tremendous advantage for those who have highly appreciated company stock in a qualified retirement plan.

Next, it was time to see if her savings strategies will get her close to the $5 million number.

After including her starting balances, to reach $5 million by age 67, she would need to save about $40,000 a year with a 7 percent return, or $27,000 a year at an 8 percent return, Lynch said.

With her company match, Sarah is currently saving $26,000 a year.

“I have no idea how the stock market will perform over the next 27 years and what will be considered a reasonable rate so return, however, I do feel that a number between 7 to 8 percent is a good place to start,” he said.

But, he said, there should be certain conditions.

Lynch said Sarah’s investing dollars should remain consistent through all different market cycles. She shouldn’t chicken out with new investments during market downturns.

Plus, he said, her investing style should remain consistent. No selling in panic mode or stopping new investments in rough times.

To increase her chances of success, Lynch recommends she target another $9,000 of savings each year so her projected end number will fall somewhere in the middle of the growth targets Lynch created.

But he offers a word of caution.

“Money and math are unrelated and even though I can compound numbers at 7 percent, it does not mean you will have that much money,” he said. “More likely than not, you will have more or less but not that number.”

The stock market will do whatever it does, he said, and sometimes timing and luck are critical to your success or failure.

“That being said, I do feel that having a solid process really helps your chances of success,” he said.

THE FINISH LINE?

Sarah should look deeper at her strategies and other items in her overall plan.

Lynch said if you are aiming at any goal, the most important thing to do is to have an actual target that you can shoot for.

Along those lines, it’s important to understand and revisit what you think you want to spend.

“Be realistic and include fun,” he said. “Assume more in travel and health care.”

Once you create a budget, prioritize each expense as a “must have” (health care), “priority” (auto, core expenses) and “would like to have” (travel, fancy cars).

Then look to see where you have some wiggle room if the numbers don’t work. This allows you to adjust you plan based upon your priorities, he said.

Next, realize that every year as you approach retirement, a few things happen: some positive and some negative.

Your Social Security benefit increases by around 8 percent per year, indexed for inflation, and that’s a good thing.

Every year you work means an additional year of savings that will grow for another 20 years.

“Assuming Sarah is saving $35,000 a year with her company match, in 20 years at 7.5 percent, the value will be almost $150,000 per year from waiting — compounding,” he said.

Then realize that if you keep saving like this, you’re also benefiting from not spending your hard-earned savings and it will keep working for you.

For every year that she works, she will have income so she won’t have to withdraw $150,000 a year from her retirement accounts. Assuming she keeps saving $35,000 a year, plus benefits from compounding. In total, it’s equivalent to adding $300,000 to the back end of her retirement plan for each year of waiting, Lynch said.

But at the same time, Lynch said, you should be sure to enjoy what you save.

“You are a year older and closer to not being alive. You are only alive for a certain amount of years and dying with a lot of money means that you lose,” he said. “You could have retired earlier, had fun, traveled the world, met new people and done a bunch of other fun things.”

One more point to note. Lynch said Sarah has estate planning documents, something very few single people — and even married couples with children — have.

“For single people, while a will is important, medical directives that allow someone to authorize health care is probably even more important,” he said. “Just because you have parents that are alive, a brother or sister, nobody — except a judge — can authorize medical care without health care power of attorney that includes HIPAA wording. That is kind of a really big thing.”

Money makeovers offered by NJMoneyHelp.com should be treated as general advice about personal finance and money decisions. Before you make any changes to your personal financial plan, see a professional who can consider your entire financial situation. If you’d like a free money makeover, email .