How Do You Know When You Have Enough to Retire?

There is no simple answer, but consider some factors.

Provided by Ron R. Richards

You save for retirement with the expectation that at some point, you will have enough savings to walk confidently away from the office and into the next phase of life. So how do you know if you have reached that point?

Retirement calculators are useful – but only to a point. The dilemma is that they can’t predict your retirement lifestyle. You may retire on 65% of your end salary only to find that you really need 90% of your end salary to do the things you would like to do.

That said, once you estimate your income need you can get more specific thanks to some simple calculations.

Let’s say you are 10 years from your envisioned retirement date and your current income is $70,000. You presume that you can retire on 65% of that, which is $45,500 – but leaving things at $45,500 is too simple, because we need to factor in inflation. You won’t need $45,500; you will need its inflation-adjusted equivalent. Turning to a Bankrate.com calculator, we plug that $45,500 in as the base amount along with 3% annual interest compounded (i.e., moderate inflation) over 10 years … and we get $61,148.1

Now we start to look at where this $61,148 might come from. How much of it will come from Social Security? If you haven’t saved one of those mailers that projects your expected retirement benefits if you retire at 62, 66, or 70, you can find that out via the Social Security website. On the safe side, you may want to estimate your Social Security benefits as slightly lower than projected – after all, they could someday be reduced given the long-run challenges Social Security faces. If you are in line for pension income, your employer’s HR people can help you estimate what your annual pension payments could be.

Let’s say Social Security + pension = $25,000. If you anticipate no other regular income sources in retirement, this means you need investment and savings accounts large enough to generate $36,148 a year for you if you go by the 4% rule (i.e., you draw down your investment principal by 4% annually). This means you need to amass $903,700 in portfolio and savings assets.  

Of course, there are many other variables to consider – your need or want to live on more or less than 4%, a gradual inflation adjustment to the 4% initial withdrawal rate, Social Security COLAs, varying annual portfolio returns and inflation rates, and so forth. Calculations can’t foretell everything.

The same can be said for “retirement studies”. For example, Aon Hewitt now projects that the average “full-career” employee at a large company needs to have 15.9 times their salary saved up at age 65 in addition to Social Security income to sustain their standard of living into retirement. It also notes that the average long-term employee contributing consistently to an employer-sponsored retirement plan will accumulate retirement resources of 8.8 times their salary by age 65. That’s a big gap, but Aon Hewitt doesn’t factor in resources like IRAs, savings accounts, investment portfolios, home equity, rental payments and other retirement assets or income sources.2

For the record, the latest Fidelity estimate shows the average 401(k) balance amassed by a worker 55 or older at $150,300; the Employee Benefit Research Institute just released a report showing that the average IRA owner has an aggregate IRA balance of $87,668.2

Retiring later might make a substantial difference. If you retire at 70 rather than at 65, you are giving presumably significant retirement savings that may have compounded for decades five additional years of compounding and growth. That could be huge. Think of what that could do for you if your retirement nest egg is well into six figures. You will also have five fewer years of retirement to fund and five more years to tap employer health insurance. If your health, occupation, or employer let you work longer, why not try it? If you are married or in a relationship, your spouse’s retirement savings and salary can also help.

Can anyone save too much for retirement? The short answer is “no”, but occasionally you notice some “good savers” or “millionaires next door” who keep working even though they have accumulated enough of a nest egg to retire. Sometimes executives make a “golden handshake” with a company and can’t fathom walking away from an opportunity to greatly boost their retirement savings. Other savers fall into a “just one more year” mindset – they dislike their jobs, but the boredom is comforting and familiar to them in ways that retirement is not. They can’t live forever; do they really want to work forever, especially in a high-pressure or stultifying job? That choice might harm their health or worldview and make their futures less rewarding.

So how close are you to retiring? A chat with a financial professional on this topic might be very illuminating. In discussing your current retirement potential, an answer to that question may start to emerge.

Ron R. Richards may be reached at 208.855.0304 or ron@cir1daho.com.

www.cir1daho.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 – bankrate.com/calculators/savings/simple-savings-calculator.aspx [5/30/13]

2 – marketwatch.com/story/how-to-know-if-you-have-enough-to-retire-2013-05-25 [5/25/13]

Weekly Economic Update – September 28th, 2015

A BIT MORE OPTIMISM AS SEPTEMBER ENDS

The University of Michigan’s consumer sentiment index advanced slightly in the past couple of weeks, rising to a final September mark of 87.2 from its initial reading of 85.7. Regardless, this was the index’s poorest final monthly reading since October 2014. It did surpass the expectations of analysts polled by Bloomberg, who expected a final number of 86.5.

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Creating a Budget For Retirement

It only makes sense – yet many retirees live without one.

Presented by Ron R. Richards

The importance of budgeting. You won’t be able to withdraw an unlimited amount of money in retirement, so a retirement budget is a necessity. Some retirees forego one, only to regret it later.

Run the numbers before you retire. Years before you leave work, sit down for an hour or so and take a look at your probable monthly expenses. Perhaps you decide that you’ll need about 75-80% of your end salary in retirement. Perhaps closer to 65-70%. There’s no “right” answer for everyone. Online calculators may help you get at least a basic understanding initially, but remember – a qualified financial professional is likely going to be able to take more into account for you than a simple calculator could.

You first want to look for changing expenses: housing costs that might decrease or increase, health care costs, certain taxes, travel expenses and so on. Next, look at your probable income sources: Social Security (the longer you wait, the more income you may potentially receive), your assorted IRAs and 401(k)s, your portfolio, possibly a reverse mortgage or even a pension or buyout package.

While selling your home might leave you with more money for retirement, there are less dramatic ways to increase your retirement funds. You could realize a little more money through tax savings and tax-efficient withdrawals from retirement savings accounts, by reducing your investment fees, or by having your phone, internet and TV services bundled from one provider.

Budget-wreckers to avoid. There are a few factors that can cause you to stray from a retirement budget. You can’t do much about some of them (sudden health crises, for example), but you can try to mitigate others.

* Supporting your kids, grandkids or relatives with gifts or loans.

* Withdrawing more than your portfolio can easily return.

* Dragging big debts into retirement that will nibble at your savings.

Budget well & live wisely. A carefully thought-out budget – and the discipline to stick with it – may make big difference in the long run.

Ron R. Richards may be reached at 208-855-0304 or ron@cir1daho.com .

www.cir1daho.com

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Weekly Economic Update – September 21, 2015

September 21, 2015

FED POSTPONES RATE MOVE, SIGNALS ONE SOON

The September interest rate hike Wall Street had long anticipated did not occur, as the Federal Open Market Committee voted 9-1 against raising the federal funds rate Thursday. In their September 17 policy statement, Federal Reserve officials noted that recent “global economic and financial developments” had “somewhat” impeded the U.S. economy and reduced inflation pressures, lessening the need to tighten. The central bank’s latest dot-plot chart projected the benchmark interest rate at 0.40% by the end of 2015 – hinting that an upward move might come as early as October.1

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Monthly Economic Report – August 2015


THE MONTH IN BRIEF

Fears about the health of China’s economy rocked Wall Street and other stock markets last month. The Dow Jones Industrial Average lost 6.57% in August, and other major U.S. equity indices followed it into correction territory. Not one consequential foreign benchmark posted an August gain. The anxiety also sent prices of oil and other commodities lower; oil rebounded before the end of the month, but many other commodity futures did not. The housing sector and a few encouraging U.S. economic indicators offered bright spots, but they were not enough to divert attention from concerns about China’s economic woes.1

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