One of the more frequent questions we receive from people is determining how much they should save for retirement. Many individuals and families who have members approaching retirement or are already retired are concerned as to whether they will outlive their retirement funds. The answer to this question, of course, is different for everyone.
In order to compute an amount necessary for retirement, you first need to set some goals and ideals for what your retirement will look like. Do you plan to live where you are or move somewhere else? Will you downsize or keep your current level of spending and living? Would you like to travel? Will you have a mortgage on your home? How is your health?
Answering these and similar questions can help set a base for your retirement needs. One way many people calculate their retirement needs is to take a percentage of their current income. For example, if you and your spouse have a combined income of $100,000 now, when retired, you may take a percentage of this, say 70%, as needed upon retirement. In other words, your investment portfolio in combination with Social Security and any other income, must be able to provide $70,000 per year.
A different way to calculate retirement needs is to add up your current expenses. For example, if your expenses add up to $75,000, you will need that much each year after retirement. You can analyze your specific expenses to determine if they will be greater or lower upon retirement. For example, medical expenses tend to be higher, where things like auto expense are lower. Many retired couples find they only need one car and can avoid extra auto insurance and gas expenses.
Once you have determined your needs, you can plan for how you will fund the retirement life. Areas such as Social Security, pension plans, annuities, and other means of providing income can be reviewed. Next, you can figure out the total investment portfolio needed to make up the difference.
Assumptions must then be factored in to determine rates of returns of different investment opportunities during the accumulation time before retirement and then during the distribution time after retiring. Various “what if” scenarios can be modeled at differing levels of risk vs. return. This will help you see if additional funds must be invested, higher rates of return must be sought, or retirement expectations must be revised.
Geier Asset Management can help you navigate through these financial concerns through a sound financial plan and investment advice. Our Certified Financial Planners® are more than happy to put their training, expertise, and diligence to work for you to insure a happy retirement. Let’s get started right away.