Retirement Planning?
Chances Are You’ll Need More Money (Income)
Are You on Track For An Amazing Retirement?
Is Your 401(k) Balance Going To Be Enough?
So often, we leave retirement planning for the future or hope that our company-sponsored retirement plan will take care of it, but a secure retirement requires a plan.
Most Americans will depend on income from 401(k)s, IRAs, Roth IRAs, and other company-sponsored plans. Because the income from these plans will be subject to taxes and market risk, it would be challenging to produce a systematic stream of pension-like guaranteed income for a 20-30 year retirement.
The 4% Rule
The 4% rule, which has long been a guideline for retirees to determine safe withdrawal rates from their retirement savings, is increasingly being scrutinized in the financial planning community.
Originally developed by William Bengen in 1994, the rule suggests that retirees can withdraw 4% of their retirement portfolio in the first year and adjust the amount for inflation in subsequent years. This strategy was intended to ensure that retirees do not outlive their savings over a 30-year retirement period. However, the rule’s simplicity and reliance on historical data from a different economic era have led to criticisms and calls for more flexible approaches.
Recent analysis highlights that sticking rigidly to the 4% rule can be risky, especially in today’s economic environment with high inflation and fluctuating interest rates. Financial advisors now emphasize the need for personalized strategies that account for market conditions, individual spending needs, and longevity risks. Alternative approaches include dynamic withdrawal strategies, integrating annuities for guaranteed income, and using comprehensive financial models that adapt to changing circumstances.
While the 4% rule provides a starting point, modern retirement planning requires more nuanced and adaptable strategies to ensure financial security throughout retirement, such as starting the withdrawal rate at 3.3% as suggested by some financial advisors.
What Are Your Goals For Retirement?
Maybe your goal is to travel without fear of running out of money. Maybe you want to live life to its fullest and leave a legacy to your family or your favorite charity. Whatever your goal, you never want to find yourself spending this time in fear that you will outlive your money.
Many experts now believe that your retirement income should be 80% of your pre-retirement income. For example, you’d need $80,000 per year in retirement to live on if your pre-retirement income was $100,000 and in this example, you should have at least $1.6 million at the time of retirement if you plan to live comfortably in retirement for 20-30 years. Would that be enough to sustain your retirement lifestyle considering taxes, inflation, market corrections, and potential extra health care expenses (outside of Medicare)?
Why wait to see if there is a real problem? A proactive approach would be to have a stress test on your current retirement account(s) to see if, during these uncertain economic times it would last; however, taxes and market risk can pose a challenge to producing a steady income stream of income from these plans in the long term.
The Bottom Line
The bottom line is that most individuals will need more money (income) than they expected during retirement. Where will it come from? What are your options? Will you have to work longer, save more, incur more investment risk, or eliminate some of your retirement dreams?
Request a free “stress test” for your current retirement plan HERE, to see if you are in danger of outliving your money (no sales pitch, just discovery information). It’s better to get a glimpse of potential future financial problems NOW than to get a financial surprise when you least expect it or worse yet, can’t handle a “big surprise”!