Cracking the Code: How Much Money Do You Need to Retire or Stay Retired Comfortably?

How much money do I need to retire? Ah, the million-dollar question (or perhaps the multi-million dollar question, depending on your retirement dreams). This is a common inquiry that plagues many, and for good reason. There’s no one-size-fits-all answer, as your ideal retirement is as unique as you are. The best way to start is reverse engineering. Start with your ideal scenario: evaluate your budget needs for the basics, your desired lifestyle needs, the bucket list of things you’d like to own or do, and the least fun… planning for what could derail all those things, such as health, the downturn in the economy, and/or loss of a spouse.

We are going to break this down into a two-part series. This month, we’ll explore Certainty of Income and Asset Protection. In next month’s article, we’ll discuss Strategic Growth and Taxes.

Certainty of Income

First and foremost, your desired retirement has to be funded. The most successful retirement plans involve certainty and predictability of income. The foundation of a successful retirement plan involves income planning. Just like your income during working years, retirement income is just as important to providing peace of mind and freedom to do what you love to do when you want to do it, and most importantly, not feeling anxious or stressed doing it! Certainty of income in a retirement plan should cover not only your basic needs but, if possible, all of the routine expenses that are involved in supporting the lifestyle you desire. To reverse engineer this, you need to know how much it will take on a monthly/annual basis to provide the confidence you need. Once you’ve calculated what that need is to fund your desired retirement, you’ll then take an inventory of the predictable income you may already have to work with. These would be things such as Social Security, Pension, rental property cash flow, annuities you may already own, residual business income, etc. Interest and dividends can be a great tool. Still, you’ll need to ensure your plan includes testing those types of income with variabilities, such as interest rate changes for CDs, money markets, bonds, and fluctuations that can come in dividend-earning stocks, ETFs, and mutual funds. Be sure to allow yourself enough margin so that if these variable interest tools fluctuate downward, you can still maintain your level of monthly spending.

Asset Protection

Next, the least fun part is planning for the What-ifs. These could be long-term care needs, loss of a spouse, or terminal illness. Once you have the above income and liquidity in place, you need a plan to protect your assets and, if married, protect each other and provide for the inevitable….none of us get out of here alive. Tools such as life insurance, long-term care insurance, trusts, wills, etc., are valuable estate planning tools.

Losing a loved one can be devastating enough. Adding financial disarray and uncertainty can derail the one/s left behind for the rest of their life. A solid estate plan will address whether you have enough assets to mitigate against these risks or whether transferring some or all of it to insurance and/or other vehicles can help take care of these inevitable facts of life in retirement and older age. Considering your family medical history, such as mortality, cognitive decline, and physical disorders, is not fun but important to help gauge some of the risks that you may be up against. Many folks look at a trust and/or will as the final answer to an estate plan. However, as valuable as they may be, they are usually not the end-all in an estate plan. The financials are very important to consider. How will your assets be taxed? Do you have IRAs, employer retirement plans, and other tax-deferred assets that could diminish the value of what you leave behind by Uncle Sam taking every penny they are entitled to? Do you have a plan for how you want your home/s disposed of and distributed? Is your spouse properly positioned to maintain their lifestyle in their remaining years? If you need long-term care, will that evaporate your nest egg? These are all things and more to consider when you are planning your retirement and estate. Often, a good estate plan will involve an attorney, accountant, and financial advisor to develop a plan that considers all of these elements.

Nearing Retirement or Already Retired and Have Questions?
Schedule a complimentary consultation today. We’ll work with you to understand what you currently have, how it works, and how it affects you. From there, we can collaborate on a plan to maximize your income and get closer to a tax-free retirement.