How Long Will My Retirement Savings Last?
The closer we get to an age when we have the option to retire, the more questions arise, such as How long will my retirement savings last? Most Americans leave the workplace between ages 55 to 65. Many just keep working because they don’t know how long their retirement savings will actually last.
If you are experiencing concern over how long your retirement savings will last, working with a financial advisor can help alleviate those concerns and get you on the right path for your retirement.
If you are experiencing concern over how long your retirement savings will last, working with a financial advisor can help alleviate those concerns and get you on the right path for your retirement.
Financial Advice
A good financial advisor knows that retirement planning is one of the most important aspects of his or her job and a top concern for clients. We want to be able to project how much income you can count on and for how long. Essentially, this is based on your amount of investable assets, how they are invested, how much you need to live on, how long you are going to live, and other variables, such as social security income. If you do not have specific figures for us, we use all sorts of national averages, such as the average retirement healthcare cost. We input this data into software that runs a Monte Carlo analysis. This analysis generates a range of outcomes of your financial life far into your future so that you will know your percentage likelihood of meeting your goals.
Obviously, this analysis is only as good as the data entered. A good financial advisor will get to know you and understand your financial situation so that these entries can be as accurate as possible. From there, we can advise how to invest your portfolio to better meet your goals and how to structure your income in retirement. We can advise you on how much you should spend in retirement or how much longer you should work. A good financial advisor can help you plan for this time in your life that you should be able to enjoy. What is more valuable than good financial advice when you need it?
Retirement Strategies
The 4% rule is a rule of thumb on how much a retiree should withdraw from their portfolio each year for their retirement savings to last. It simply states that a retiree should withdraw no more than 4% from their portfolio each year in order for the portfolio to last throughout a 30-year retirement (which gets most people to their life expectancy). So, if you have a $1MM portfolio, this rule states that you should withdraw no more than $40,000/year from it. Your income of course can be supplemented with social security, pensions, and other income sources you might have.
The 4% rule of thumb can be a simple tool to work backward on how much you need to save to build your investments to where they need to be so that a 4% withdrawal equals an amount that you can live on comfortably.
As with all rules of thumb, this one does not work 100% of the time. It can be fine tuned and customized for the individual. This is where a good financial advisor creates value and shows his or her worth. Fine-tuning a retirement plan can make a significant impact on a client’s bottom line. We can do this by investment selection, withdrawal strategies, savings strategies, account structuring, tax strategies, and overall planning.
When to start investing
While it seems like everyone has advice on how to save money, everyone's situation is different. If you are nearing retirement and you are just starting to plan, don't lose focus! It's really never too late (or too early) to start retirement planning and investing in your future. Remember, hardly anyone can afford to live solely on Social Security benefits. So start planning now.
If you are many years from retirement, then you have an advantage. Time is on your side. However, the need still exists for hiring a professional advisor to help you structure your portfolio for the long run, guide you along the way, and advise on important financial decisions.
One example of advice some people miss out on: If your employer offers a 401k company match, remember that this is free money! If you don’t contribute up to the match, you lose your chance to receive that free money and you don’t get another shot at it. Therefore, if possible, contribute up to the match, if not more. You also can open a traditional IRA, Roth IRA, or Roth 401k. Look into all your options because there are many available, regardless of your age. We can help you sort through them.
Albert Einstein apparently is the one who said that compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it. Interest compounds over time. So, the more time you have to invest, the better. Said differently, your original investment amount (your principal) grows. That growth, along with the principal, also grows. That growth on the growth grows, too, and so on and so forth! And the longer you invest, the faster it grows, like a snowball effect. Therefore, the best time to start investing is now, regardless of your age, and a good financial advisor will help guide you the entire way.
One example of advice some people miss out on: If your employer offers a 401k company match, remember that this is free money! If you don’t contribute up to the match, you lose your chance to receive that free money and you don’t get another shot at it. Therefore, if possible, contribute up to the match, if not more. You also can open a traditional IRA, Roth IRA, or Roth 401k. Look into all your options because there are many available, regardless of your age. We can help you sort through them.
Albert Einstein apparently is the one who said that compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn’t, pays it. Interest compounds over time. So, the more time you have to invest, the better. Said differently, your original investment amount (your principal) grows. That growth, along with the principal, also grows. That growth on the growth grows, too, and so on and so forth! And the longer you invest, the faster it grows, like a snowball effect. Therefore, the best time to start investing is now, regardless of your age, and a good financial advisor will help guide you the entire way.
Compound illustrations are not predictions of investment performance, and investment principal and interest are not guaranteed and are subject to market fluctuation. This material is intended for informational/educational purposes only and sould not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact a financial professional for more information specific to your situation.