Retirement questions....What are you doing to prepare?

[Broken Arrow]

Re: Retirement questions....What are you doing to prepare?

Money doesn't buy happiness but it most certainly buys options and opportunities.

Well said!

[Cheetahwoman7]

Re: Retirement questions....What are you doing to prepare?

DisneySteve,

You said that you wanted to save between $2-3 million dollars for retirement. What type of monthly income would that give you? What would you have to be earning (percent wise) on those millions to get the type of income you want?

I'm just trying to get some perspecitve.

Thanks,
CJ

[disneysteve]

Re: Retirement questions....What are you doing to prepare?

You said that you wanted to save between $2-3 million dollars for retirement. What type of monthly income would that give you? What would you have to be earning (percent wise) on those millions to get the type of income you want?

I'm just trying to get some perspecitve.

The rule of thumb most planners use is that you should withdraw 4-5% of your nest egg in year one of retirement. Drawing more than 5% greatly increases your risk of outliving your money.

So a 4% draw on a $2.5 million dollar portfolio would be $100,000 or $8,333/month. That would roughly be 80% of our current income.

I use a 7% return when doing retirement projections.

Note that this does not include Social Security. I don't include that in my retirement planning as I don't know what benefits will be. I don't think current estimates that we get sent each year will be accurate 20 years from now. So we may need to save less to meet our goals if SS is still in decent shape, but I'm not counting on it.

[safari]

Re: Retirement questions....What are you doing to prepare?

The rule of thumb most planners use is that you should withdraw 4-5% of your nest egg in year one of retirement. Drawing more than 5% greatly increases your risk of outliving your money.

So a 4% draw on a $2.5 million dollar portfolio would be $100,000 or $8,333/month. That would roughly be 80% of our current income.

I use a 7% return when doing retirement projections.

Note that this does not include Social Security. I don't include that in my retirement planning as I don't know what benefits will be. I don't think current estimates that we get sent each year will be accurate 20 years from now. So we may need to save less to meet our goals if SS is still in decent shape, but I'm not counting on it.

As long as you're not withdrawing more than the interest that you earn, your savings will never reduce in size. In your example, you will be able to withdraw 7% every year, and your savings will remain at $2.5 mil.

[disneysteve]

Re: Retirement questions....What are you doing to prepare?

As long as you're not withdrawing more than the interest that you earn, your savings will never reduce in size. In your example, you will be able to withdraw 7% every year, and your savings will remain at $2.5 mil.

That would be true ONLY IF the portfolio never lost value. We all know that stocks fluctuate in value. One year the portfolio could be up 10%, but the next year it might be down 5%. If I withdrew all the earnings the first year, I'd have to dip into principal the second year. Use that method and you'll run out of money.

The 4% figure factors in fluctuations in the value of the portfolio. That 4% also gets adjusted annually for inflation. So if inflation in year 1 was 3%, in year 2 I would draw 4.12%.

[Ima saver]

Re: Retirement questions....What are you doing to prepare?

By the time you retire, would you keep most of your money in high paying certificates of deposit so you would be taking no risk?

[safari]

Re: Retirement questions....What are you doing to prepare?

By the time you retire, would you keep most of your money in high paying certificates of deposit so you would be taking no risk?

I'd probably keep 1/3 of my money in stocks and mutual funds and the other 2/3 in bonds and CDs. Depending on how much money I'll save by the time I retire, I may decide to invest more money in stocks and mutual funds.

[disneysteve]

Re: Retirement questions....What are you doing to prepare?

By the time you retire, would you keep most of your money in high paying certificates of deposit so you would be taking no risk?

First, putting your money in CDs does not equal "taking no risk." Instead of investment risk, you would be taking interest-rate risk, the risk that your return won't keep up with inflation.

But to answer your question, yes, by the time I retire, I'd expect to have a good chunk of my portfolio in fixed-income instruments (probably not CDs, more likely tax-free bonds). But I'd still keep 40% or so in stocks early on. Let's say I retire at 62. I'd be doing my planning based on living to 90, so I'd still have nearly 30 years to fund. You need a good exposure to stocks to do that.

[KandiB47]

Re: Retirement questions....What are you doing to prepare?

I *think* I'm doing a good job saving for retirement. My husband and I are in the WRS (Wisconsin Retirement System) so our employers contribute 10% of our earnings without any match from us. We have about twenty thousand invested. We are both under 30 so I haven't put a lot of thought into the actual retirement part of it. That's a long way away. Unfortunately, because my job is changing, I'm leaving the WRS. I am starting to put $200 a month into a Roth IRA which I know isn't enough but that is all I can afford right now. My husband will stay in the WRS so that's a bonus.