Planning for retirement often seems to involve more questions than answers. Below, we answer some of the most common questions, so you can make more informed decisions when planning for the future.
How Much Do I Need To Save?
You probably wish there was a simple answer to this question. Unfortunately, there's not. How much you need to save depends on a lot of factors, including your current age, the age when you plan to retire, your expected lifestyle, how much income you might get from Social Security and pensions, and even how long you expect to live. There are plenty of online calculators that can help, but meeting with a financial advisor can help you draw an even clearer picture. We can work with you to model different scenarios, so you can see how far your savings will really go.
When Should I Retire?
Many people assume they should retire as soon as they're eligible for Social Security - that's age 62 for most people. But choosing to retire based on that single metric isn't a great idea. For one, given longer life expectancies, a healthy 62-year-old can expect to live for another few decades. You may simply not be ready to give up work that soon. Two, the earlier you retire, the longer your money needs to last. If you haven't saved a lot, you may need to keep working to save more, preserve what you've already set aside, and potentially increase your Social Security benefits.
The fact is, determining when to retire is a very personal decision based on your health, your spouse's health, your total savings, and more. Meeting with a financial advisor to determine a realistic retirement date based on your financial situation is likely to lead to more success.
Is It Realistic to Plan on Working Part-Time in Retirement?
Many people plan to make up a retirement savings shortfall by continuing to work part-time in retirement. There are a lot of advantages to that plan, including staying active and engaged and also avoiding depleting your savings. But assuming that you'll be able to work through your 70s may not be a safe bet. First, there's no guarantee you'll be able to get a job in retirement - the economy can be fickle and age discrimination is real, making it harder for some older people to find employment. Plus, there's the health question. Your chances of becoming disabled increase as you age, which could make it impossible to work.
Your best bet? Save as much as you can now, and don't count on being able to work in retirement.
How Much Money Can I Take From My Portfolio Every Year?
For years, the rule of thumb has ben that you can withdraw 4% of your portfolio value every year in retirement. That's a ballpark number that should keep you from spending down your principal and exhausting your savings, assuming your retirement lasts 30 years. But what do 4% withdrawals really look like? If you have $500,000 in retirement savings in a diverse portfolio, you'd generate income of about $23,000 per year if you followed the 4% rule. That doesn't exactly promise a life of luxury.
Some people think the 4% rule is out of date. They believe stock and bond returns could be lower in the future than they have been historically, which could make 4% withdrawals too aggressive. These people would advise taking out even less every year, which of course, means saving even more.
I'm In My 50s and Worried I Don't Have Enough Saved
First, the good news. You'll probably be able to retire, eventually, but you may have to work longer than you want. And you may have to make some lifestyle adjustments to avoid running out of money. The answer really depends on how much you have today and what you expect your retirement to look like. If you have healthy savings but are still worried about falling short, you may be able to make up the difference by saving more aggressively in the next decade and perhaps cutting spending (getting rid of extras like RVs and fancy vacations, or moving to a smaller, less-expensive home).
If you're really far behind, you have your work cut out for you. But you can improve the situation. First, start saving, as much as you can now. Plan to work for as long as possible so you can keep saving and get the most out of Social Security (if you don't claim until age 70, your benefits will be permanently higher by 8% for each year you delay past normal retirement age). You'll also want to look for ways to reduce expenses and increase your income. Please call if you'd like to discuss your retirement plans in more detail.