default avatar
Welcome to the site! Login or Signup below.
Logout|My Dashboard

Number One Retirement Question - Retirement And Money Smarts

Number One Retirement Question

Font Size:
Default font size
Larger font size

Posted: Friday, March 23, 2012 11:30 am | Updated: 12:50 pm, Wed Apr 4, 2012.

Do I have enough to retire? This question has caused more sleepless nights, headaches, and stress than almost any financial question we face during our lifetime.

Retirement is a process of swapping one source of income for another. Many retirement books, blogs and gurus start by asking the question: how much do you want/need to live on?

Let's assume that you want to live on $65,000 per year.

Taking their advice how would Mr. and Mrs. Smith know if they have enough money to retire. Well, Mr. and Mrs. Smith 65 have $1,000,000 in the bank earing a 4% return with a 3% inflation rate and they have a life expectancy is 85. Based on the typical on-line calculator or self-help book their money will most likely run out at age 80. This is 5 years short of what they need to retire.

Based on this process, Mr. and Mrs. Smith do not have enough money to retire. They are left feeling powerless to control their own future.

Let me share with you a different approach.

When you depended on your job for income, did you tell your boss how much you wanted to live on or did he tell you how much he would pay you. Once you knew your salary, you and your family adjusted your lifestyle to fit your income.

Why is retirement different? It isn't a question of do I have enough to retire. It is a question of how much will my savings, investments, social security and pension pay me for the rest of my life?

Let's look at the same question, in a new way. How much will the Smith's assets be able to pay them for the rest of their life?

Changing the question, the Smiths now know that they could retire on $52,000 per year. They may choose not to retire or try to squeeze some additional cashflow out of their retirement savings. But now they are in control of their retirement.

The next time you are making a decision about retirement, whether you are 60 and trying to decide if you can retire now or 50 trying to figure out how much longer you need to work, remember the question is not how long will my money last it is how much will my savings and investments pay me.

Welcome to the discussion.