When you are approaching retirement there are lots of things to think about, but there are a few retirement numbers to watch and pay attention to. You want your money to last and you want your retirement to be pleasant and comfortable throughout your retirement life. If you are going to achieve these objectives, consumers need to pay attention to the withdrawal rate from your savings, the level of pensions that you will receive and the amount and timing of the government pensions that you will receive. Pay attention to these numbers, make the right decisions and re-evaluate as you get closer to retirement to make sure you working with the most up to date information.
Retirement Numbers to Watch
Withdrawal Rate – this is the rate that you withdraw from your savings. The amount you need vs. take will depend on a number of factors. First you need to decide just how long you need your savings to last, what the income level is from your savings and of course how long you will live. Many advisers suggest 4% as a reasonable withdrawal rate. We happen to think that the rate you use should depend on the income level from your investments and the health of your investments. Some years when investments are not doing well you may want to take less, while in good years you can afford to take more out.
Reliance Rate – percentage funded by pensions from employer and government. How much will your income amount to in retirement compared to what you were making prior to retirement. The difference is how much you will need to make up from savings, perhaps working longer and expense reduction.
When to Claim Government Pensions
Claim early and you will suffer a penalty i.e. a reduction in the amount paid out, claim later and the pension amount goes up, but you have to do without that income until you claim it. Can you afford it? Will your cash flow allow you to delay your claims?
Add up all of your income from all sources in retirement, compare to your current income level and develop a plan to source the difference in income.