How much money do I need to retire is the question everybody wonders about.
The right answer is down to lifestyle and how much you need to service that lifestyle. If you need $100,000 per year to live then the amount of money you need to retire is far greater than if you need $50,000 per year to live. If you only need $20,000 to year then you will need far less money.
Money Needed for Retirement
The basic principle behind retirement is to end up with a large nest egg that is invested securely and provides an income stream for you. As an example if you have a nest egg of $500,000 and it is invested in a moderate investment returning 5% per year then you will get an income of $25,000 per year without touching your principal.
Some high yielding income funds can pay up to 8% that would give you $40,000 per year without touching your principal. However, higher yielding investments tend to carry more risk so your principal is not as secure as the lower yield investment.
For many $500,000 is a lot of money to have at retirement, especially if you do not have much disposable income. One way to get to sums like that is through home ownership. Mortgages take between 20 and 30 years to pay off. When you have paid them you own the house. The house is an asset. Hopefully when you reach retirement age you can either sell your house or free up equity in the house to fund your retirement. Your house is your retirement plan.
The secret is to find investments that pay out income streams that do not affect the principal. If you are lucky find a good investment that even shows some capital growth. That means your income stream will increase every year. If you spend your principal amount during retirement then you will run out of money. If you run of money then you clearly did not have enough money to retire. So estimate your retirement needs, and plan wisely.
Why Retirees are Going Back to Work
If you’re like many people, you may have thought of retirement as an endless string of easy-going days spent enjoying your family, travel and hobbies but increasing numbers of retirees are finding that retirement means a return to the work force.
One reason behind this trend of back-to-work retirees is the increased longevity of Americans. A person who is 65 today can now expect to live to age 83. That’s an increase of four years over 1960. Living longer means an individual needs to have adequate income to cover those extra years of life.
In the past, retirees often relied upon pension plans to help underwrite their retirement. But many companies have slashed pension plans leaving retirees without any benefits to supplement their Social Security income. In other situations, individuals retiring before the age of 65 have been relying upon access to an employer’s health plan and then planned to convert over to Medicare at age 65.
But in order to control rising expenses, many companies now require employees or their retired staff members to make payments on health insurance premiums. The costs of those premiums along with the cost of prescription medications are causing many a budget to collapse.
While Social Security remains viable for today’s retirees, another income loss has been the loss in stocks. Many retirees lost income in their investment programs and now don’t have the time to make up their losses so they are going back to work to build up new sources of income.
So if any or all of these changes are taking a financial toll on you, should you go back to work? Working part-time or even full-time might be a fully satisfying endeavor and provide the cash you need. However you should also consider getting the advice of a financial planner who may have some excellent suggestions on how to reduce your expenses or make best use of your assets.
The retirement years don’t need to be worrisome years. All you need is some understanding, evaluation, and planning to improve your financial situation for today and tomorrow.
Retirement Planning Tips
Planning for retirement is one of those goals that many people never seem to find time to do, but professionals caution that Baby Boomers, in particular, have little time to waste. Following are some retirement-planning tips designed to help you retire on your terms:
1. Select a target date for your retirement.
2. Estimate how much money you need to accumulate by your designated retirement date.
3. Find out about your Social Security benefits (look for the statement that comes each year around your birthday).
4. Upgrade your use of tax-advantaged plans such as a 401K (or the complementary non-profit program 403B) take advantage of employer matching of offered.
5. If your employer doesn’t have a pension or retirement plan, ask that one be started.
6. Talk with your banker or tax advisor about IRA options.
7. Don’t touch your savings. It is a good idea to maintain long-term and short term savings. Long-term savings should be off limits for everything except retirement. Use your short term savings for emergencies or short falls.
8. Diversify your assets.
9. Ask questions. Get help. Seek the assistance of a professional financial advisor.
10. Begin now and set clear short term and long term goals. Review your progress at least annually.
11. Observe penalties and taxes when considering any withdrawals as penalties can take quite a chunk out of your nest egg. Search web sites for the highest available rates on your investment returns.
12. Refuse to fall for any investment scams. If you are suspicious contact your Secretary of State or your local Better Business Bureau.
13. Investing money shouldn’t stop when retirement begins. If you are already retired, you still have many years ahead. Don’t instantly convert all your money into fixed-deposit and market investments. You should still be scheming comparatively long term, possibly a mix of growth and income. You should consult an expert to discuss your own situation. If you don’t meet your retirement plans, there are still some choices. Find out the average rate of comeback on your investments before and after retirement. Stocks have an excellent record vs. long-term inflation, so consider engaging a part of your capital in stocks that will increase the savings more quickly than inflation.
14. Calculate the estimated mean inflation rate for the rest of your lifetime.
Information is for educational and informational purposes only and is not be interpreted as financial advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.