This episode of the Ready for Retirement podcast is the beginning of a mini-series answering the question “How do you know if you are on track for retirement?” Over the next four episodes, James will be outlining the four distinct questions that will ultimately help you know if you are on track.
The first of these questions is “Do you have enough money to retire?” While this is certainly an overwhelming thought, the goal of this episode is to break it down into smaller questions and topics that are easier to address. First, in order to begin with the end in mind, it is important to determine when you want to retire, what you want your retirement to look like, and how much money do you need to save today in order to take care of your future needs and wants. Second, sit down and get a good idea of your monthly income during retirement that will come from sources such as Social Security, pension, part time work, or rental income. Third, calculate the difference between your anticipated monthly needs during retirement and the non-portfolio monthly income from the previous step. This remainder is the output you will need from your portfolio. Finally, take into account other factors such as taxes, cost of living adjustments, longevity needs, and income start dates.
If you go through this exercise and find that you will have enough money to retire, GREAT! If not, do not lose heart. You still have time to make adjustments to your portfolio and non-portfolio income before it is time to retire. And if you have already retired and you fear that you may run out of money based on this exercise, there are still things you can do to make your money last longer. Tune back in next time for the next part of the Countdown to Retirement mini-series!
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- Begin with the end in mind
- When do you want to retire?
- What do you want to do in retirement?
- What does that cost in today’s dollars?
- Adjust for inflation
- Know your income
- Now vs. then
- Non-portfolio income
- Understand how much needs to come from your portfolio
- How much do you need in your portfolio to produce the amount you need?
- General rule of pulling out 4% in your first year
- Other calculations to consider
- Cost of living adjustments
- Longevity needs
- Income start dates
0:40 – Introduction of the new mini-series
1:25 – Do you have enough money to retire?
2:05 – Begin with the end in mind
5:46 – Know your income
7:42 – Understand how much needs to come from your portfolio
10:57 – Other calculations to consider
14:40 – Summary
15:32 – If you aren’t a “yes” yet…