It’s no secret that retirement is the single largest financial concern for most investors.
Retirement income planning is a lifelong process. Throughout your working years, your financial planning will undergo a series of stages in which you will evaluate your progress and make decisions to ensure you reach them.
The first step in retirement income planning is determining how much of a nest egg you’ll need to retire. Financial planning studies show that a retiree will typically need at least 80% of his previous income to maintain their standard of living. Of course, this figure will change according to one’s lifestyle during retirement. To be safe, you may want to use a target income similar to what you are making now. Research shows that you do not want your withdrawal rate to be over 6%, but 4-5% is even safer. For example, if you want a retirement income of $50,000/year, you need to save around $1,000,000 ($50,000/.05).
Next you need to figure out how much you need to put away each month to reach that goal. There are many factors to consider when calculating how much you will need to save each month to accrue a large enough nest egg from which you can pull enough income: Your current age, intended retirement age, life expectancy, current earnings, income sources during retirement, amount of current retirement savings, expected savings contributions, cash outflows during retirement, portfolio risk, portfolio return, inflation, etc. The earlier you plan and start saving, the less you’ll have to save each month to reach your goal. For example, someone starting from zero with 30 years left to retirement would need to save $670.98/mo to reach $1,000,000 in savings assuming an 8% rate of return, while someone with 15 years left to retirement would need to save $2,889.85/mo given the same assumptions. Sitting down with a financial advisor to run through the figures pertinent to you is advisable.
Now the question becomes where are you going to save? Which types of accounts are going to be the most beneficial? The most common types of retirement accounts are 401(k)’s, IRA’s, and Roth IRA’s. However, there are many more potential options including 403(b)’s, 457’s, Profit Sharing Plans, Defined Benefit Plans, SEP IRA’s, ESOP Plans, Annuities, etc. These plans offer different benefits and limitations, so consulting with a financial planning or wealth management firm is prudent.
At Clay Northam Wealth Management we work with our clients to design a comprehensive retirement plan to meet their goals. This includes the accumulation of sufficient funds to meet their needs, as well as the distribution of those hard earned assets to ensure they are not outlived. Servicing all of Southern California, we have two convenient offices located in the Los Angeles and Orange County. Please to not hesitate to contact our offices to see how we can be of value to you.