HOW MUCH IS ENOUGH FOR RETIREMENT?
“How much is enough” is one of the biggest questions that you will face during your final years in the workforce. Do you need $1 million to live the retired life you dream of? $2 million? $3 million? The short answer is that everyone’s amount will be a bit different. In this article, we explore four of the critical questions to ask when thinking about how much retirement savings you, and your family, will need.
1. WHAT TYPE OF RETIRED LIFE DO YOU WANT TO LIVE?
Is traveling important to you and your spouse? What about buying a second home or renovating the home you raised your kids in? How often will you go out to eat and what types of large purchases will help you live the good life during retirement? While not a lifestyle question, the cost of health care is also a critical expense to consider. All of these questions are highly personal and require a good amount of consideration.
2. HOW MUCH INCOME CAN YOU EXPECT EACH YEAR?
Do you have a pension or defined benefit plan that will provide income during your retired years? What about rental income or Social Security? It’s important to understand how much income you can expect each year during your retirement and then add this to your expected annual retirement account withdrawals.
3. HOW MUCH WILL YOU NEED TO DRAW FROM YOUR ACCOUNTS EACH YEAR?
Questions one and two are fairly straightforward – now things get a bit trickier. How much can you safely withdraw without running out of money? The “4% rule” is a good starting point, but this rule of thumb assumes that your stock and bond market returns will be close to those observed during the 20th century. Your returns may be a bit different, so we always recommend getting a custom analysis to answer this important question. It’s also important to understand the difference between withdrawals from Roth versus traditional accounts.
4. HOW LONG WILL YOU BE RETIRED?
This is the most difficult question of them all, for a number of reasons. How long does your money need to last? The most recent data shows that a man living in the United States can expect to live to age 76.4 and women can expect to live to age 81.2. But, we know that this is just the average, meaning that 50% of people will live longer – and some much longer. This can be an emotional question to think about, but it is very important when determining “how much is enough.”
We understand that there are a lot of moving pieces to this puzzle. The good news is that RAA has assisted many families in determining how much to save leading up to retirement, and how much they can safely withdraw from their accounts, when, and in the most tax-efficient manner once in retirement.
WOULD YOU LIKE TO FIND OUT IF YOU ARE READY FOR RETIREMENT?
Request a financial consultation to speak to an advisor about the topics listed above, as well as any others you have been wondering about. This consultation is all about getting a clear picture of your current financial life to help you understand the factors that can help you achieve the retirement of your dreams.
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