by Joe Hearn | Mar 25, 2015 | Investing, Retirement
How much should I have by my current age?
A lot of material crosses my desk in a given week, but one thing that caught my eye recently was a retirement report from J.P. Morgan. One of the charts in the report was titled Retirement Savings Checkpoints. If you’ve ever wondered “How much should I have saved by now?” this chart can give you a rough idea.
Just find your current salary on the top and your age on the left and then draw a line from each until they intersect. The number at the intersection point is how many multiples of your salary you should have saved by now. For example, if you make around $75,000 and you’re 55 years old then you should have about 4.1 times your salary (or about $307,500).
How much should I have by 65?
There is a general rule of thumb that says that most people need about 85% of their pre-retirement income during retirement in order to maintain their standard of living. Research done by Charles Farrell and Aon Hewitt shows that the average person can achieve that 85% replacement rate as long as they have Social Security plus 11-12 times their annual income in savings when they retire (for more on this topic read “The 15 minute retirement readiness review”). So the chart above can give you a rough idea of how much you should have saved for retirement based on your current age and income, but your ultimate goal will be to have around 12 times your annual income in savings when you retire.
That’s just an estimate of course, but it can be a helpful way to quickly gauge your progress. Ideally you’ll want to factor in the specifics of your unique situation when estimating how much you’ll need for retirement. You can do that by working with a trusted adviser or using a tool like our Ideal Retirement Design Guide.
Note: Sorry for the “radio silence” last week at the site. I was on the road visiting clients in Illinois and then spending some time in Tennessee during our daughter’s spring break. We’re trying to get her to all 50 states and Tennessee was number 22. Props to all of our Tennessee readers. We had a great time in Nashville, Franklin and Memphis.
~ Joe
by Joe Hearn | Feb 26, 2015 | Asset Allocation, Investing, Retirement
The number one fear of retirees is running out of money. How can you create a predictable paycheck in retirement?
Step 1: Create your retirement budget.
Decide how much money you will need each month in retirement by creating a detailed retirement budget. You can download a free Retirement Budget Worksheet from our Retirement Toolkit.
Step 2: Evaluate your potential income sources.
There are 5 primary sources of retirement income: Social Security, pension, personal investments, passive income like rental property and work (usually part-time). Evaluate which of those income sources will be available to you during retirement and estimate how much income you can derive from each.
Step 3: Compare your budget with your income.
Is your anticipated income enough to cover your anticipated expenses? If not, you may need to delay retirement or find ways to trim your retirement budget.
Step 4: Decide on a claiming strategy for each income source.
With Social Security, you can claim early, on time or late. You might be entitled to spousal benefits or it might make sense for you to file and suspend so your spouse can claim benefits based on your record while your benefits continue to grow. Likewise, there are a number of strategies available when pulling money from your investments, such as dividends only, guaranteed income, systematic withdrawal, bucket strategy and a time segmentation strategy to name a few. All that just to say that for each source of income, there is usually a way to maximize that income based on your unique situation. Working with a competent adviser is usually a good idea when you get to this point. There are a lot of moving parts and the difference between a good strategy and a bad one is usually the difference between…well…a good retirement and a bad one.
Step 5: Retire. Review. Recalibrate.
Having a predictable paycheck doesn’t stop once you retire and turn on your various sources of income. Take time each year to review your withdrawal strategy and make changes as necessary. Some questions to ask yourself:
- Is my withdrawal rate sustainable?
- Is my income still sufficient and keeping pace with inflation?
- Is my asset allocation still appropriate?
- Is the amount of risk I’m taking still suitable?
- Has the value of my assets changed significantly?
- Has my life expectancy changed?
Your answers to those questions will help determine if you need to make changes to your investment and/or distribution strategy.
Bonus: How can I make my money last longer?
Earlier I said that one way to help extend the life of your nest egg is to maximize income from sources like Social Security. What are some additional ways to make your money last?
Dynamic Spending: Take a look at your retirement budget. How many of your expenses are non-negotiable vs. discretionary? If most are non-negotiable, then you will likely be forced to draw money from your investments during inopportune times. If, however, you’re able to set up a budget that has a certain level of discretionary spending, then you can adjust your spending based on market conditions. In down years you can put the discretionary spending on hold and extend the life of your nest egg in the process. Housing and transportation are two of the biggest non-discretionary retirement expenses. Downsizing your house and cars or entering retirement with those things paid for can give you a great deal of flexibility with your spending.
Diversification and asset allocation: Having an appropriate asset allocation helps you mange three key risks: 1) It keeps you from being too aggressive and subject to large declines. 2) It keeps you from being too conservative and subject to inflationary erosion. 3) It will hopefully help your portfolio grow consistently over time so it will last as long as you do.
Stay (or get) healthy: Longevity is a risk because the longer you live, the longer your portfolio will need to last. Even so, most of us want to live as long as possible. Staying active and healthy can save on health care co-pays, prescription costs and (biggest of all) long-term care expenses.
I kept things pretty simple in this post. When you start considering things like inflation, longevity and market fluctuations, the complexity of the predictable paycheck multiplies quickly. If you want to take a deeper dive into some of those issues, feel free to check out The Ideal Retirement Design Guide.
~ Joe
by Joe Hearn | Jan 29, 2015 | Distribution Planning, Investing, Retirement
Some people have the time, temperament, knowledge and discipline to handle their own finances, while others could use a little help. Regardless of which category you fall into, you should seriously consider hiring an adviser to help you when it comes to retirement. Why? Because the financial issues facing a retiree are very different than the financial issues facing a pre-retiree.
Whether we do it or not, most of us are at least familiar with the concept of saving. Saving is a pre-retirement issue. We’re usually less familiar with concepts like cash flow management, determining how much we need to retire, pension payout options, retirement plan distributions, estate planning, maximizing Social Security, researching and obtaining health insurance and the tax consequences of certain distribution strategies. Those are post-retirement issues. Those are issues that most of us don’t deal with very often, so getting a little help is probably a wise move.
Retirement Quiz
To help people evaluate their retirement knowledge, The American College of Financial Services recently developed a retirement literacy quiz. They gave the quiz to 1,019 Americans ages 60 to 75 who had at least $100,000 in assets. How did they do? Eighty percent of the people failed. Ouch! Fourteen percent got a Gentleman’s D. Less than one percent got an A. Those results reaffirm the point I was making earlier. Most people aren’t familiar with the types of financial issues that they will be dealing with in retirement and could benefit from some help.
I’d encourage you to take the retirement quiz and see how you do (Full Disclosure: I got 100%, but hey, this is what I do for a living!). Hopefully long time readers will do better than most since I’ve written on many of the topics before, but if you miss your fair share, consider reaching out for some help. Maybe that means hiring an adviser. Maybe it just means browsing past articles in our Archives or picking up a resource from our Store like The Ideal Retirement Design Guide. Bottom line: get some help if you need it. Don’t let mistakes derail your retirement.
~ Joe
by Joe Hearn | Jan 24, 2015 | Happiness, Retirement
Greetings from the Vee Bar ranch in Wyoming. The family and I came here for a long weekend to do a little skiing at the Snowy Range and to check Wyoming off our list of states visited. We’re trying to get our daughter to all 50 before she graduates from high school. The Cowboy State is number 21.
I’ll write more about that in a future post, but today I wanted to write about something a little different: how to find purpose in retirement. One of the most popular posts I’ve written at IR is 15 Practical Ways to Live a Purposeful Life. One of the most popular books in recent memory is The Purpose Driven Life. Neurologist, psychiatrist and holocaust survivor Viktor Frankl said that the striving to find meaning in one’s life is the primary, most powerful motivating and driving force in humans.
In other words, we’re hard wired to want purpose and meaning. That need doesn’t somehow vanish when you enter retirement. If anything, I’ve noticed that it gets stronger. When I talk to clients that have been retired for awhile, the desire to find purpose and to leave some sort of legacy that outlasts them is important.
I’m starting this series of Saturday bucket list posts and I want them to be fun and encouraging, but with this first one I thought I’d just point out that your list doesn’t need to consist entirely of bungee jumping and exotic travel. As Shakespeare once said: “Leisure is a beautiful garment for a day, but a horrible choice for permanent attire.”
Don’t get me wrong. You should absolutely do fun and interesting things. Splurge on yourself. Be a little selfish. Those things are great, but don’t forget to add items to your list like giving, serving and volunteering as well. Maybe that means doing something like my retired friend Dan who spent three months volunteering on Mercy Ships in the Congo. Maybe that’s building houses for Habitat for Humanity like my client Bill. Maybe it means volunteering in your church or running for town council. Whatever it is, be thinking of ways to use your time, treasure and talents during retirement that will have a positive impact on others and will bring meaning and purpose to you. Visit our Pinterest page for more ideas on volunteering during retirement.
Since this series will cover things on my list, I picked an item that matches up with the ideas above. Over the years my wife and I have given to an organization called charity: water that brings clean water to communities in need around the world. The wells have huge health ramifications and also free people to use their time more productively than walking miles every day just to get enough water for drinking, cooking and bathing. In 2015 I’ll take revenue from the store at IR and fund one of those wells in the name of you, my much appreciated readers. I’ll update you later in the year on progress toward the goal. In the meantime, be thinking about what you can add to your own bucket list that would be fun but would also help you fulfill your purpose in life.
Have a great weekend.
Joe
by Joe Hearn | Jan 22, 2015 | Lifestyle Design, Pursuits, Retirement
Success in just about anything can be boiled down to two things: 1) Knowing what works and 2) Doing what works. At Intentional Retirement I try to balance my writing between those two things. Sometimes I write about what it takes to have a secure, meaningful retirement. Sometimes I put those things into practice and then write about my experience.
Not surprisingly, I plan on doing more of that in 2015, but with a small twist. During the week I’ll continue to write about the nuts and bolts of a great retirement, but each Saturday I’ll write what I call a “Bucket List” post. It will be a short story about something fun or interesting that I’ve done (or am in the process of doing) from my Bucket List. I’ll include a “How To” with each article in case some of you want to try it out. I’ll post them on Saturday to give you a little weekend inspiration and also so you can feel free to pass over it or save it for later if you’ve had a busy week.
To make it fun, I thought I’d do a little giveaway with some of the posts. And by little, I mean I’ll be giving stuff away all year and it will include small things like books and big things like plane tickets. I’ll post more on the prizes and rules below.
I hope you follow along and enjoy the articles, but more than that I hope you’ll use them as inspiration for your own adventures. We’re not designed to just sit around and think about life or endlessly make plans for “Someday.” We’re designed to live life. The only way to make that happen—to make 2015 different and better than any other year—is to make plans and execute them. Knowing what works. Doing what works.
Bucket List Giveaway Rules
How do I enter? There are two primary ways to enter. First, you can follow one or more of the Intentional Retirement Social Media sites. For example, like us on Facebook and you’ll get one entry. Follow our Pinterest page and get another entry. Ditto for Twitter and Instagram. If you already follow us on one of those then you’re already entered in the giveaway (see how easy that was).
Second, you can tell your friends about the site and encourage them to sign up for our Free Retirement Toolkit. If someone you refer signs up for the Toolkit, I’ll give each of you 5 entries in the giveaway (note: if you’re already signed up then you’ve already got 5 entries). For example, get 10 of your friends to sign up and you get 50 entries and they each get 5. The only catch is that I need to know who to give credit to, so you just need to let me know. There are two easy ways to do that. You can CC (or BCC) joe@intentionalretirement.com on the email when you tell your friends about the site. Then if any of the people in that email sign up, I’ll give you the credit. You can also just have your friend respond to the “Welcome” email they get after signing up to let me know who referred them. Bottom line, just let me know who to credit.
Can I enter more than once? Yep. Every time you do the things described above you’ll get an additional entry (or entries). And no, you can’t “like-unlike-relike” or “subscribe-unsubscribe-resubscribe” to get multiple entries. All of the entries will be cataloged in a spreadsheet and maintained throughout the year. Winners will be randomly drawn from that spreadsheet, so the more entries you have, the greater your odds of winning something.
What are the prizes? The grand prize is $1,000 plane ticket on your airline of choice, anywhere you want to go. This will come in the form of a gift card on that airline, so you can use it for multiple tickets if you prefer. I’ll give that away on New Year’s Eve of 2015 so you can ring in the New Year by going somewhere awesome. Throughout the rest of the year I’ll be giving away books that I’m reading, books or guides that I’ve written, gear associated with certain Bucket List items and things I pick up on my travels.
Legal mumbo jumbo. Void where prohibited. No purchase necessary. See the official rules over here.
Five-second summary: Follow along throughout the year. Get your friends to do the same. Win cool stuff. Repeat.
As always, thanks for following along. I’m excited for 2015 and I hope you are too. Touch base if there’s ever anything I can do to help.
~ Joe
Photo by Ben Carr. Used under Creative Commons License.
by Joe Hearn | Dec 10, 2014 | Lifestyle Design, Retirement
Note: It’s launch day for The Ideal Retirement Design Guide! Only 250 are available in this initial run, so check it out in the Store if you’re interested or want more information.
Last month R.A. Montgomery died. You might remember him better as one of the creators of the hugely popular Choose Your Own Adventure children’s book series. For those not familiar with the series, you don’t read the books straight through. Instead, you read the first scene or episode and at the end of that episode you are presented with a choice. Depending on which choice you make, you turn ahead to a particular page where you discover the consequences of your choice, learn how the story progresses as a result and are then presented with another choice. This continues, giving each book multiple potential story lines and often 10-20 potential endings.
I think part of the reason that the books have sold more than 250 million copies is due to the fact that a) we like adventure and excitement, and b) we like to have some control in choosing our own destiny. Both of those tend to be true regardless of age. They are true when we’re 7 and they usually still hold true when we’re 70.
Imagine your retirement as a real-life Choose Your Own Adventure series. You will be bombarded with decisions—both leading up to and during retirement—that will determine your course. Some of those decisions will pertain to things like finances, but retirement is more than just a math problem. Often your decisions will deal with things like health, relationships, leisure, family, pursuits and where you decide to live. Those choices (along with your finances) will directly impact how happy and fulfilled you are during that phase of life.
To make the best decisions for you that will result in your ideal retirement, it’s probably a good idea to not just flip a coin every time you need to choose between A and B. It’s better to have a good understanding of yourself and what you want your life to look like. In other words, it’s good to have a plan. If you want some help with that, as I mentioned at the beginning of this post, I launched a new guide today called The Ideal Retirement Design Guide. You can read more about it here or check it out in our Store over here. There’s never any pressure to buy anything here at Intentional Retirement, but if you think it will be helpful to you it’s available.
Thanks for following along. Touch base if I can ever help.
Joe
Photo by Mike Baird. Used under Creative Commons License.
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