Tag Archives: Funding Retirement

How Long Will Your Retirement Savings Last

How Long Will Your Retirement Savings LastConsumers about to retire and even those who have already retired are asking the question, How Long Will Your Retirement Savings Last? Some people have already realized that they do not have enough and will need to work far longer than they ever thought they would have. If you did not save enough by the time you are 55, chances are that you will need to keep working for many more years. But the real question is how do you even calculate if you have enough to retire? We happen to think that you really need to answer the question, How long do you expect to live during retirement? Then you can look at whether you will have enough to retire on.

How Long Will Your Retirement Savings Last

We suggest that you start by looking at how long your parents and uncles/aunts lived, add 5 years to that life span to be conservative. We are all living longer now due to better health and better food. If your parents lived until they were 80, you should expect to live until at least 85 barring other ailments, accidents, etc. If you retire at 55, then you will need to have enough savings to last 30 years in retirement.

That is a lot of years to cover from a financial perspective. The next calculation can be really complex with interest rates, growth rates, and return on investments while taking into account withdrawal rates. You might even need help from an investment adviser to determine this detailed answer. There are also calculators available online that can also help to some degree.

If you are looking for a quick answer, take your current income level, subtract any pension income you expect to receive, and multiply that number by the number of years you will be in retirement to calculate how much you will need. This is probably the maximum number since it does not take into account the income you will receive on your investments. If this number scares you, then you will either have to work longer to decrease the number of years in retirement or take an income cut while in retirement. The decision is yours. make the right one.

Is your retirement fully funded?

Is your retirement fully fundedThere are many complicated ways to calculate Is your retirement fully funded or not! It really comes down to what lifestyle do you want to live while you are retired and whether you have enough monthly income to lead the lifestyle that you want. This includes all of the usual expenses such as a home to live in, food, clothing, entertainment, and perhaps some amount of travel.

But most retiree’s eyes glaze over when you begin looking at the various cash flows that you will need in retirement. Let alone the amount of money that you will need to have saved to generate the income you need. They must also take into account any pension income that they might be entitled to. This will include government pensions in addition to drawing from their savings plans. They have to assume inflation rates and investment income rates. As well as many other expenses associated with trying to assess if they have sufficient income.

Is Your Retirement Fully Funded

The cash flow method may be the simplest in the near term for most people. How much income do you have now? What are your expenses and are you saving some money towards reducing debt as well as for retirement? This is a start and a way to get control of what you are spending and what you are actually saving.

How much income will you actually have at retirement? Take a look at the pension income from your company. When you will receive it, what options there are to consider such as early retirement? Next, do the same thing for government pensions and assess how much and when you will receive your pension.

What are your expenses discretionary and required expenses now, and after your retirement? Do you need to downsize? Do you need to reduce spending to get control of spending and match spending to income levels? Once you have this data consumers can quickly tell whether they will have shortfalls or not. They can tell how much they need to save to replace the income they may need in retirement.

Can you project your schedule of income and expenses a few years into the future during retirement? If you can also add inflation and anticipated increase in income to this picture you will then have a more accurate estimate of how well you will fare during retirement.

Retirement Plan Options

Retirement Plan OptionsWith so many people retiring these days we thought we should do a series of posts about retirement planning and retirement planning options. More people will be retiring than ever before and it is all due to the baby boom group reaching the magic age of retirement. Some will retire at 50, while others will work well into their late 60’s or even into their seventies depending on their financial situation as well as their personal objectives.

If there is one message that you should take out of this post, it is “plan for your retirement!” This can take many different aspects so that is why it is important to begin early, develop several retirement plan options and be prepared to adjust them over time, to select one over the other, and even change them completely based on whatever life throws at you. The important thing is to have a plan, develop the things you need to do to make that plan happen, and then take the action to achieve your plan.

Complete a Financial Plan

Either do this yourself or have a financial adviser do it for you. The data you will need includes:

  • Planned retirement date
  • Current savings
  • Current debt
  • Present living costs
  • Living costs first year of retirement
  • Living cost in subsequent years of retirement
  • Special costs and expenses that you know about
  • Planned trips, expenses, etc that must be considered

From this plan, you will quickly know how much more money you need to save to achieve the level of income you will need to live in the style that you would prefer while retired. You may also have some idea of the quality of life you will experience and the things you will like to do wild retired. You cannot sit in front of the TV all day or your health will decline and you will become extremely bored. Planning for retirement and developing retirement plan options is includes financial as well as the lifestyle that you will need.

Test Drive Your Retirement Plan Options

This is an interesting challenge for many people. If you know how much you will have to live on each year during retirement and have worked this out with your investment planner, why not test drive your plan. Take six months or a year, and attempt to live on whatever income you feel that you will have during your first year of retirement.

This can be an interesting exercise for many people who have no idea of how much they need during retirement. If you are going to be short of money, you will quickly understand and the reality check will help to confirm what you need to do to avoid getting into the situation of retiring without enough money to live on or at least live to the level that you prefer. Test each of your options this way to really make sure that your plans will be realistic.

Retirement Plan Options to Consider

There are many options and they will differ for many people based on their savings, their income, and their preferred lifestyle. The following are a few issues to consider as you develop options and try to make up your mind on what the best course of options is correct for you:

  • Be conservative in all of your assumptions, you will be pleasantly surprised
  • Diversify your investments
  • Invest in high-quality investments and avoid chasing high-risk yield
  • Hire an investment advisor
  • Never relinquish control
  • Assess your plan every year to recheck and adjust as needed
  • Work longer if needed to ensure that you have benefits or income or both
  • Cut down on expenses where ever you can
  • Develop the main plan which is the preferred plan and at least two others that include
  • A plan that is much more aggressive in term of income i.e. +20%
  • A plan that is much more aggressive in terms of expense I.e. +20%

Develop your retirement plan options using these types of guidelines, recheck every year, and adjust as needed. Be prepared for change and be prepared to keep on working or go back to work to help your plan out if the economy for example does not cooperate e.g. interest rates are low and will remain low, limiting your income as a result.

Will My Money Last Through Retirement

This is the key question for many middle-aged people and seniors who are contemplating joining the retired ranks, “will my money last through my retirement years”? The baby boomers are retiring and we see various statistics that show that some people have lots of money saved while others know they will have to work well past the normal retirement age just to buy food and live somewhat comfortably!

We recently came across a post on CNN Money recently that really caught our attention and although we are not republishing it here, we are reposting an image that was in the article since it was so clear about the issues we are all wondering about.

Will My Money Last Through Retirement

Will My Money Last Through Retirement

How Much Money do You Have

The first assumption is that the retired person has $500,000 when they retire at age 65. The column on the left assumes that you withdraw 4% each year. Which is only $20,000 and concludes that you have an 80% chance that your money will last until age 95.  They do not state what assumptions were made regarding income rates and stock market performance.

Option 2 assumes that you take an extra $10 k out for the first 5 years, with market drops assumed in the far right option. While the percentage probability decreases that you will make it to 95, it also assumes that you must take a spending drop after age 70. This may be a reasonable assumption since most of us will be less active after age 70. This is part of the normal aging process. Why not spend our money while we can enjoy it is the motto of these two plans!

Some people would say they were loaded if they had $500,000 in savings. They would not spend a second more thinking about the issue. While others would feel that they were vastly underfunded. They would continue working and saving until they either had what they felt they needed or were forced to stop work due to poor health.

How Long Will Retirement Funds Last

The answer is that all of us must figure out what we need on an annual basis to live on. Some can get by very nicely on $30,000. While other people feel that they would need at least $100,000 a year to live. Don’t forget to also take into account all of your income from other pensions and old-age benefits. If you are happy today living on $30,000 chances are you will be satisfied with the same amount while you are retired. Figure out how much you need to live on each year. Then figure out how much you need to save to generate this income.

Assume that you will withdraw 4% each year. Also that you need $30,000 a year from your savings to add to any pension income. Divide 30,000  by 4% to get $750,000 of savings that you will need using the 4% option. You still have an 80% chance of making it to 95 with sufficient income to live on.

This is a good exercise for anyone thinking of retiring and living off their savings plus their pensions. Whether it is a company pension and/or old age pensions.  If you do not have a pension, then you must rely totally on your savings to live on into retirement. On the other hand, if you have an excellent pension, you may not have to be concerned at all about how you spend your savings. This is a very personal decision. Every situation will be different for every person or couple thinking of retiring.

Build Your Own Retirement Model

Personally, I built a spreadsheet with my age, my savings, and an assumed growth rate every year. Then I added an assumed withdrawl rate every year. Once the model was built I can easily change the percentages to look at the impact of various scenarios. This is an excellent tool, It brings to light what I needed to do to develop a winning situation. One that would ensure that not only do I have enough money. But I also identified the steps I need to take to improve my situation.

If you are not familiar with spreadsheets ask a friend who can set it up for you and show you how to manipulate the variables. It is definitely worth the time it takes and you will have peace of mind as well.

Feel free to write us a comment or two about your retirement dilemma and what your solution is to deal with your concerns.