Start
your “second act” with inadequate assets, and your vision of the future may be
revised.
How much have you saved for retirement? Are you on pace to amass a retirement fund of $1
million by age 65? More than a few retirement counselors urge pre-retirees to
strive for that goal. If you have $1 million in invested assets when you
retire, you can withdraw 4% a year from your retirement funds and receive
$40,000 in annual income to go along with Social Security benefits (in ballpark
terms, about $30,000 per year for someone retiring from a long career). If your
investment portfolio is properly diversified, you may be able to do this for 25-30
years without delving into assets elsewhere.1
Perhaps you are 20-25 years away from retiring. Factoring in inflation
and medical costs, maybe you would prefer $80,000 in annual income plus Social
Security at the time you retire. Strictly adhering to the 4% rule, you will
need to save $2 million in retirement funds to satisfy that preference.1
There are many variables in retirement planning, but there are also two
realities that are hard to dismiss. One, retiring with $1 million in invested
assets may suffice in 2018, but not in the 2030s or 2040s, given how even
moderate inflation whittles away purchasing power over time. Two, most
Americans are saving too little for retirement: about 5% of their pay,
according to research from the Federal Reserve Bank of St. Louis. Fifteen
percent is a better goal.1
Fifteen percent? Really? Yes. Imagine a 30-year-old earning $40,000
annually who starts saving for retirement. She gets 3.8% raises each year until
age 67; her investment portfolio earns 6% a year during that time frame. At a
5% savings rate, she would have close to $424,000 in her retirement account 37
years later; at a 15% savings rate, she would have about $1.3 million by age
67. From boosting her savings rate 10%, she ends up with three times as much in
retirement assets.1
Now, what if you save too little for
retirement? That implies some degree
of compromise to your lifestyle, your dreams, or both. You may have seen your
parents, grandparents, or neighbors make such compromises.
There is the 75-year-old who takes any job he can, no matter how
unsatisfying or awkward, because he realizes he is within a few years of
outliving his money. There is the small business owner entering her sixties
with little or no savings (and no exit strategy) who doggedly resolves to work
until she dies.
Perhaps you have seen the widow in her seventies who moves in with her
son and his spouse out of financial desperation, exhibiting early signs of
dementia and receiving only minimal Social Security benefits. Or the healthy
and active couple in their sixties who retire years before their savings really
allow, and who are chagrined to learn that their only solid hope of funding
their retirement comes down to selling the home they have always loved and
moving to a cheaper and less cosmopolitan area or a tiny condominium.
When you think of retirement, you
probably do not think of “just getting by.” That is no one’s retirement dream. Sadly, that risks becoming reality
for those who save too little for the future. Talk to a financial professional
about what you have in mind for retirement: what you want your life to look
like, what your living expenses could be like. From that conversation, you
might get a glimpse of just how much you should be saving today for tomorrow.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for
avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC,
a registered broker/dealer and investment advisor. CBSI is under
contract with the financial institution to make securities available to
members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - investopedia.com/retirement/retirement-income-planning/ [6/7/18]
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