When it comes to planning regarding your assets for retirement, how much is enough? In my book, I explain my approach to developing investment solutions for such a question.
(This is the seventh article in the “7 Steps to Financial Security” series.)
Establish the Basis for Contentment
You will never experience genuine contentment if you believe you can actually “have it all.” As strange as it may sound, there is no inherent security tied to the size of your portfolio. Contentment is not found in the amount of things you have accumulated. In fact, sometimes the more you have, the more worry and stress you have.
However, you can find satisfaction in knowing you won’t run out of money in retirement, even if you have to revise your desires and live a more simple life. True contentment can be found as you focus on the intangible things of life including your faith, meaningful relationships with family and friends, and good health.
Your Unique Priorities
There are so many ways to spend and invest your money in retirement, so you have to decide what is most important to you. Most of us work several decades to accumulate our savings and investments, so we should have a chance to enjoy the fruits of our labor. After all, the average person retiring at the age of 65 will spend more than twenty years in retirement. But, how long will your retirement actually last?
As you plan for a successful retirement, you need to build your financial future around your particular goals and priorities. Don’t subject yourself to a cookie cutter approach. Find a skilled financial advisor who will tailor planning to your unique needs and life circumstances and who has a proven track record of being a wise financial steward of others’ resources.
More Than a Number
Retirement planning is more than just coming up with a number. Your “number” is your total nest
egg. You will use it to generate a level of income that supports your dreams and ambitions in retirement.
Planning a successful retirement is a lot like running a business; when you develop long-term strategies, you increase your chances of success.
There are so many variables in our economy, in our political system, and in the world around us that are far beyond our personal control. However, you don’t have to live your retirement in fear. Because none of us can predict the future with absolute certainty, it is vital to look for solutions that provide flexibility.
In determining whether you have saved enough for retirement, first you need to figure precisely how much you spend every month, including those expenses that come up randomly. Reduce this by how much you will receive from your pension and from Social Security. Then, a well-designed portfolio can be constructed to provide for an annual payout to cover the difference.
However, beware of the impact of inflation. Inflation will increase your cost of living substantially during retirement. Make sure that your tax and financial advisor has constructed a good financial plan to cover this as well. Some great planning software can help in this process.
Determining Your Second-Half Paycheck
In his book You’re Fifty – Now What?, Charles Schwab defines your “second-half paycheck” as the amount available for you to make use of from your retirement investments. It is wise to start out with a withdrawal rate of 4-5 percent per year. That gives you the best chance of outliving your money. Basing your second-half paycheck on a percentage of your portfolio’s value will give you a variable income. If your portfolio goes up, so will your paycheck. If the value goes down, your paycheck will too.
A reminder for you about your assets in IRAs: Don’t withdraw from your Traditional IRA until you have to. By not withdrawing early, you avoid penalties and delay taxes. You also allow that money to continue working for you.
Being sure that your planning for retirement accurately reflects your dreams, your ability to handle investment risk, and your need to be flexible requires constant care. Through working with a proven, trusted financial advisor, you can experience peace of mind as you venture into the rewards of retirement living.