Retirement may be right around the corner or it may be 10, 20 or even 30 years away. However long it is until you cease working, if you don’t have a plan, you may never reach that all-important threshold. Here are some simple steps to take to accomplish your goal. Once you’ve narrowed down your aspirations to the most important ones, it’s time to get down to the nitty-gritty.
That means starting with a goal. What age do you wish to retire? Is it 50, 60 or 70? You may not believe this but I had a meeting with a GEN Y client today who has a 10-year plan to retire at age 37! YEP! THIRTY-SEVEN! And they are fast on their way to accomplishing this!
When looking at exactly how much it is you’ll need to maintain your current lifestyle there are a few factors to take into consideration. How much of a monthly income do you want? Will your lifestyle increase or decrease in retirement? What will your social security benefits be? Do you want to even take that into consideration? These among other questions will need to be answered to set you up with the right nest egg.
By time I mean, if you are like my aforementioned client, who is planning to start living on their assets early in life, you may have 30 years or more in retirement. For instance, if you want to retire at 50 and then live to 80, you’ll need a greater reserve than someone that lives to 80 but decided to keep working all the way to age 70.
Return on Investment (ROI) is a vital component of retirement planning. Many may mistakenly just factor a constant, 6%, 7%, 8% or more in appreciation. Like anything in the financial world, this is not a simple as just plugging in a constant % rate. I would recommend adjusting the % rate of your calculation to reflect inflation. You are also aware that the investment world doesn’t yield the exact same results every year. In fact, experiencing a negative or less than needed ROI in the first few years of retirement could have a devastating effect on your retirement income. As a CFP®, I find it very helpful to use a Monte Carlo Analysis in showing the possible outcomes and how ROI can affect a retirement plan.
We’ll help you answer these questions and make plans for the worst case scenario while doing our best make sure you actually end up in the best situation possible. Instead of asking how much do I really need for retirement, the better question to ask may be…when will retirement be possible for me?