Frederick Fisher: Five things to consider when planning for retirement
With Baby Boomers retiring at a record pace, we have been busy meeting with prospects and clients alike to discuss retirement planning. We have found that once people get within five years of retirement, they become more interested in the finer details.
One such hypothetical couple were John and Kim. Both were in their mid to late 50s and were hoping to retire at 60-62 years old. Their primary concern was if they were on track to do so.
They needed to consider five things:
First, determine how much money is needed for the desired retirement lifestyle. To do this, we recommend tracking spending to establish budget targets.
Next, identify all sources of income in retirement. This includes all pension types, the most common being social security.
In addition, review the size and allocation of the rest of the retirement portfolio. Is it large enough to generate needed income to add to any pension income?
Try a conservative approach: take the current value of all retirement and investment accounts and multiply by 3 percent.
John and Kim had two Individual Retirement Accounts, one 401(k), two Roth IRAs, and a trust investment account, totaling $825,000. If they were to draw a conservative 3 percent from those accounts today, they would create about $25,000 in annual income.
This, along with their estimated social security income of $30,000, was short of the $75,000 target for their desired retirement income, so we discussed options to close the gap.
How much should they save over the next five years to get their retirement portfolio to the size needed to generate $45,000 in income?
They did not see $1.5 million as realistic given their current cash flow. An option was to draw at a higher percentage, but risk having the principal shrink over time. Using a 4 percent withdrawal rate reduced that goal to $1.125 million; a 5 percent rate to $900,000. These findings gave them hope, but they didn’t like the risk level.
Another option is to work part time in retirement. Would one or both of them consider working two to three days per week to close the income gap? We let John and Kim know that many retirees return to work in a field they love, and more for the activity than the money. Both hadn’t thought of the idea but would consider it.
The last thing we discussed was how their expenses would change once in retirement. Some budget items would decrease, like commuting expenses. Others would increase, like healthcare.
With these five points, John and Kim were better able to plan out the next five years before retirement.
If you are considering retirement and want a check up on your current plan, talk to your financial advisor or give us a call at 530-273-4425 for a review that will help you think beyond investments.
Frederick Fisher is a Registered Representative with, and Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Ostrofe Financial Consultants, Inc., a Registered Investment Advisor and separate entity from LPL Financial. For questions or suggestions, contact Fisher at 530-273-4425, or firstname.lastname@example.org, or visit ostrofefinancial.com. Branch address: 565 Brunswick Road, Ste. 15, Grass Valley.
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