My biggest fear is not having enough income to last as long as I do!

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That is the number one comment we hear when meeting with prospective clients.  Survey after survey confirm that sentiment and have for many years.  So, how do you go about determining when you might be ready to retire?  Well, let’s look at it from another perspective, signs that indicate that you are not ready to retire!

One of my early questions to someone telling me that they are thinking about retirement is not about money.  I ask, “What will you do to fill up the time that you are currently devoting to your work?”  I do get some funny looks!  Those that can answer with multiple activities, be it hobbies, travel, crafts or volunteering seem to be the most likely to have a successful retirement from an enjoyment perspective.  Those that have trouble answering the activity question seem to struggle more often than not when it comes to enjoying their retirement.

Another simple issue is debt level.  If you are still making minimum payments on your credit cards, chances are that you are not in a position to retire comfortably.  Credit cards should be used for convenience or to get points for rewards and should be paid off entirely each month.  The interest rates on credit cards are still outrageous, even in this historically low-interest rate environment.  Don’t get caught up in that trap. Also, having too high of a mortgage payment will strain your finances in retirement leading to the same conclusion, you may not be ready to retire.

Another issue that might show that you are not ready to retire is if you absolutely love your job!  Obviously, not everyone does, so, if you do (like me!) then you are fortunate indeed!  Perhaps you could consider slowing down and working fewer hours and ease yourself into your full retirement.

Now, back to the first issue above, having enough money to retire comfortably.  First, we believe that the financial industry advertisements in various media that throw out the $1 million-dollar golden retirement savings figure is doing a huge disservice to the public.  Setting such a lofty retirement savings figure/amount/goal may simply turn people off from saving for retirement as the $1 million figure seems so insurmountable to them or they tell themselves and us in our meetings that they will never retire or stop working because they can’t afford to retire.

However, the true or real answer to the question is simply a function of math and is solely reliant on each individual’s or a couples’s particular financial circumstances. In other words, the answer is most heavily reliant or dependent on what your annual lifestyle expenses are.  Then the second part of the equation is to determine the total amount of retirement income that is available from all sources and seeing if there is a shortfall or surplus. If there is a shortfall, then we simply total up all available assets and determine how much annual income can be generated from these assets annually to help cover the shortfall.

In our practice we use a simple method to calculate if a client is in the ballpark of their retirement goal.  This is just a quick estimate based on the dollar amount invested and their lifestyle expense.  Of course, we use a financial software to do the “heavy lifting” of income calculation for retirement, this is just a simple way to determine if they are close.

Let’s use a figure of $30,000 that must come from their assets, in addition to their Social Security income and or pensions, if any.  Multiply $30,000 times 25, which is $750,000.  If they are near that number, we feel as though we can help them retire comfortably.  The $750,000 could generate $30,000 of income by generating 4% growth on the investments.  Right now, this is considered a low average rate of return over time for money invested in the stock market, so, if that 4% will cover their initial income needs at the outset, then a portfolio can be constructed that will provide income for life using specialized insurance products and the opportunity for growth of the portfolio invested in the market to account for future inflation.

If there is a surplus after subtracting all sources of annual income from annual lifestyle expenses then this is generally a good indicator or sign that you have enough income to retire and are ready to retire successfully.

 

This content is provided for informational purposes only and is not intended to serve as the basis for financial decisions.  We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives.  Investing involves risk, including the potential loss of principal.  No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Any references to lifetime income generally refer to fixed insurance products, never securities or investment products.  Insurance and annuity product guarantees are backed by the financial strength and claims paying ability of the issuing insurance company.  Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM).  AEWM and Massey and Associates, Inc. are not affiliated companies. 968551-7/21

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