What You Need For Retirement

To estimate how much money you need in retirement, you’ll have to compare how much you expect to make from all income sources to how much you expect to spend per year. You’ll also have to determine a sustainable rate of withdrawal from your assets in retirement to ensure that you won’t run out of money when you need it most. Bill Bergen was at the forefront of the topic of estimating financial needs for retirement when he pegged the rate at 4% in an influential study started in 1994.

The 4% guideline was based on a basic portfolio composed of 60% from stocks and 40% from fixed income sources. Back then, chances were good that the 4% yearly withdrawal would make your assets last for thirty years – of course, that rate would be adjusted for inflation. For instance, if the gap between what you need and what you expect to make is $ 50,000 (also called the retirement income gap), your portfolio needs to be at an overall value of around $ 1.25 million at the onset of retirement.

As economic conditions and a host of other factors have evolved significantly since then, you’ll have to take the 4% rate as a suggestion, and not a recommendation. The rate can give you something to aim for, but isn’t likely to make your nest egg last. This is because an overwhelming number of variables differ from senior to senior, making it impossible to judge whether or not the 4% annual rate is feasible. Instead, what you can do is make a conservative and educated guesses on figures such as your expected life span, investment returns, and inflation rates during the course of your retirement.

Being conservative about your assumptions can help you avoid running out of cash. If you think you’ll live longer than three decades after you retire, project low investment returns compared to statistics, or think inflation will be much higher than what it’s been in the past, you’ll have to lower your yearly withdrawals or add to your portfolio’s value before retiring.

Carina Smith is an author that specializes in financial topics concerning seniors. Puritan Financial Group specializes in helping seniors access safe and stable investments and meet their financial needs for retirement. For more information about how Puritan Financial Group can help you, please visit our website at http://bit.ly/1qSMTRP

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