Retirement planning doesn't have to be scary. Follow these tips and the best retirement advice from experts from around the web.
Keeping with our retirement planning theme for the week, I thought I would survey three experts on their views. Planning for retirement can be tough, even more so than just general financial planning. Planning for a vacation or for tuition bills is easy, you can pretty much know how much you’ll need for a specific goal. Retirement planning, not so much and that’s just one of the issues with planning for those long days of sandy beaches.
Fortunately, we’ve got the help of four personal finance bloggers right here to cover three of the most important topics in retirement planning. Advice below covers everything from your retirement “number” to dealing with the emotional side of retirement planning and even if early retirement is possible.
It’s a great follow-up to our realistic retirement planning post yesterday, week three of our 5-week Personal Finance Fix.
What’s your Number?
J. Money takes a look at likely the biggest and most basic question in retirement planning, “How much will I need to retire?” While there’s no formal calculation to arrive at how much you’ll need, I’ve never seen one anyway, the post recommends 25-times your annual expenses.
The 25x rule coincides with the general idea that you can safely withdraw about 4% of your nest egg every year without having to worry about running out of money. Basing the rule on your expenses instead of income is smart because that is what you are trying to cover in retirement.
The post also recommends that this 25x amount be in income-producing assets that you can access as well. It doesn’t matter how much you have if it’s all locked away in retirement accounts that you can’t access until you are 60 years old.
I like the simplicity of the 25x number but there are a few things to remember that may change your number.
- Depending on how old you will be at retirement, you may or may not be spending as much. Your budget for transportation will decrease not having to go to work and you won’t need those expensive suits. The older you get, the less you will probably want to go out and spend partying. For my own “number,” I’ve found that I’ll have only 85% of my current expenses at 70 which drops to 75% by the time I turn 80 years old.
- What are you going to do when you don’t have to do anything? I’ve known a lot of “retirees” that have turned their hobby into a part-time job just for something to do. Even if it is on an irregular basis, this could cover some of your costs.
My own number drops to just 20 times expenses when I assume reduced spending after 60 years old and a 4% return on my investments. Your own may come down even further if you factor in social security and money from a hobby-job.
Retiring Millenials? How Old Do I Feel?
As a Gen-X still working 50 hours a week, I’m not sure how I feel reading Robert’s post on The College Investor, “Is Early Retirement Even Possible for Millenials?” I guess I just feel kinda old.
But the question is one that’s applicable to all of us under the age of 65, though the “full” retirement age for most of us is now 67 and will probably be 70 by the time we get there. The article looks at what retirement actually looks like, three reasons why millennials want to retire early and some challenges they’re facing.
Robert wraps up the article with six different scenarios of retirement and how much you’ll need in each, assuming $65,000 a year in expenses and the potential for $2,000 a month from a part-time side hustle.
I used to dream about early retirement but the meaning has changed for me over the years. I enjoy my work as an investment analyst and blogger and can’t imagine what I would do all day in “retirement.” My own retirement plan is more of a slow shift to less work starting around 55 years old and leveling off to where I only rely on my investments by the time I turn 70 years old. If I’m able to work later into my life, even if it’s only five hours a week, then I’ll just have extra money.
I’m not counting on social security just in case it’s not there or is significantly less than is promised. I’m not an alarmist and don’t forsee soylent green in our future but just don’t want to get caught in the cold if the government hits a snag paying out benefits.
Are You Afraid of Retirement?
RetirebyForty ask a question that you don’t often hear but probably should¸”Are you Afraid of Retirement?” The question may seem a bit odd, why would you be afraid of sunny beaches and drinks with little umbrellas, but a lot of people may have good reason to be fearful.
Life expectancy for those of us in the Gen-X cohort is around 83 years and it’s longer for the millennials. Joe points out a Fidelity study that shows the average retirement fund balance of those 55 and older is just $250,000 and nowhere near enough to last several decades. In fact, assuming a 4% withdrawal rate over about 20 years, that amounts to just $10,000 a year to live on. Even with Social Security added in, that’s not much.
Beyond the issue of having enough, Joe also highlights the lack of purpose that some people fear in retirement. Our working lives give us constant goals and challenges. We are constantly working on being successful at work, providing for our family or just looking forward to retirement. When you shuffle all that aside, what is there to occupy your time? My aunt works at WalMart, not because she needs to but because she wants to and because she enjoys having that purpose.
There’s good reason for many to wonder how they will pay the bills in retirement and it’s probably a lot of the reason we are all hear on the internet looking for answers. As for purpose, I think there are a lot of things people find to give themselves purpose in retirement that they hadn’t thought of before.
My advice for the two retirement fears, make a plan so you don’t have to worry financially and listen to a little Bobby McFerrin for the latter.