Danger Ahead: What You Don’t Know About Retirement Can Hurt You
You have probably heard lots of news stories and statistics about how Americans are not saving enough for retirement. But even if you are one of those who is saving diligently, unfortunately, this still may not be enough.
According to a recent survey by New York Life, most Americans do not understand how to make their accumulated assets last through their retirement years.
If you don’t understand the finer points of retirement planning, it is easy to withdraw too much from your retirement accounts during the early years, and run out of money while you are still living – a situation that every future retiree fears.
Unfortunately, the survey found that over 75% of Americans over age 40 do not know how much of their retirement savings they will be able to safely spend each year without running out of money. Almost 60% of respondents overestimated the safe withdrawal rate – and half of these people thought they could spend at least 10% of their savings each year in retirement – which for the vast majority of people would not last more than 10 years!
Before you retire, you need to understand the answer to important questions such as when you should start withdrawing money, and how much can you safely withdraw if you want your savings to last approximately 30 years (a fairly safe number for most people to assume they will live after retirement).
Consulting with a qualified retirement planner is advised, to make sure you are getting the answers you need to these important questions.
Many conventional financial planners propose 4% to 4.5% as a safe withdrawal rate, but this will depend a lot on how much you have saved, how much income you need, and how much growth your retirement savings are getting during your retirement years.
Planning ahead is key, so that you can plan for these variables well in advance, and can save enough to meet your income goals.
For example: If you know that you will need (or want) approximately $80,000 of income per year during retirement, you would need to have at least $2 million saved – if you are following the 4% rule of thumb.
However, there is no such thing as a “one-size-fits-all” retirement plan! Keep in mind that many personal variables may also affect your plan, such as estate planning needs and desires, expected longevity, Social Security income, long-term care costs, medical expenses, and more. This is why it is important to seek qualified advice when designing a retirement plan.
You also should not assume you will be able to work during retirement. While this can certainly help supplement your income in some cases, a recent survey found that half of all current retirees had left the workforce earlier than expected due to factors beyond their control, such as layoffs, caring for a spouse or loved one, or personal health reasons.
While working longer is a great option for some, you should not rely on this as a necessary part of your retirement plan.
However, don’t despair! With proper advance planning, and the correct advice, you can have all of the money you need for retirement safely set aside when the time comes. And by utilizing wise withdrawal strategies, you can enjoy the retirement you have dreamed of, without having to worry about running out of money.
We consult with families and individuals throughout the entire retirement planning process – making sure you are saving enough during your working years (and saving in the proper places), and guiding you in designing the right retirement income strategies for you when it comes time to retire. For a free consultation with one of our retirement planning specialists, please contact us today!