Most people believe that their home is their most expensive thing they’ll ever pay for. They’re wrong. The most expensive thing people ever pay for is retirement. And they’ll pay for it after they quit working.
That’s why it’s important to have a clear idea of what you’re getting into before you decide to tell your employer that you’re leaving.
The typical retiree’s sources of income include Social Security. They may have a pension, although fewer companies are offering them. If there is a gap between those sources of income and their spending plans, the difference is made up by using their retirement savings.
Running out of money is the single biggest concern of retirees. The big question is how long we will live and the amount we can draw from our savings before they are depleted.
For simplicity, let’s assume: You’re ready to retire today and plan to have your retirement savings last 25 years. You’ve moved your savings into investments that you believe are appropriate for your retirement portfolio. The investments will provide a constant 6% annual return. You’ll withdraw the same amount at the end of each year.
|If you saved this amount||Here’s how much you could withdraw annually for 25 years|
Keep in mind that these examples don’t include factors such as inflation and volatility that can have a big impact on your purchasing power and account value.
For example, if inflation were 4% a year, a withdrawal of $31,291 25 years from now would only be worth $11,738 in today’s dollars.
Investment losses would decrease your account’s growth potential in subsequent years. To account for these factors, you might need to save even more.
Many experts estimate that you’ll need 80% or more of your final annual salary each year in retirement. Social Security may only provide around 40% of what you need. And don’t forget that retirees typically have different types of expenses compared to people still in the workforce, such as increased health care and travel costs.
This is why planning is so important. A financial plan will provide you with answers to many of these questions. Retirees also need to reduce the chances that their portfolio will experience major losses due to market volatility or taking too much risk. This is where a Registered Investment Advisor who is also a Certified Financial Planner (CFP®) can help. At Korving & Company we prepare retirement plans and, once you approve of your plan, we will manage your retirement assets to give you peace of mind.