5 Questions to Understand Your Retirement Needs Carmichael Hill

Feeling uncertain of how much money you’ll need when you retire? You’re in good company. This blog provides some tips on ways to start gauging your financial demands, as well as some suggestions on how to bolster the duration of your savings and find success in retirement.

  • How Much Should I Spend?

One of the easiest ways to judge how much money you will need in retirement is to take stock of how much money you need right now.[1] Track your expenses and see how much money you spend on different aspects of your life. You should be able to get a sense of how much money you spend on average if you track your expenses for at least three months. But if tracking budgets isn’t really your thing and you don’t need category level detail, then just check your bank statements. If you balance is mostly unchanged from month to month then you’re spending roughly what you make. Likewise, if its growing or shrinking then your spending more or less than what you make. Average out the discrepancies to figure out, on average, your amount of overspending or saving.

This is a good start, but your lifestyle is likely to change in retirement and so will your expenses as they adjust to match. Your balance sheet may change, too, and could free up more cash flow as the mortgage is paid off.[2] The same goes for outstanding car payments or loans you plan on paying off before retirement. Be sure to factor this in as you make your retirement budget!

  • How Much Income Will I Have?

Now that you have a sense of how much you’ll need to cover your living costs in retirement, you can determine what your savings should be invested in to generate enough income to cover those costs. Add up your social security, pensions, and annuity payments, as well as any income you receive from rental properties. These are considered relatively safe and secure income sources that you can rely on to support you through retirement. If these payments are larger than your budget then you’re in great shape! But if they’re smaller you’ll need to rely on savings and investment accounts, such as a 401k and IRA, to make up the shortfall.

These income sources are largely market-based and tend not to be as secure. It’s not guaranteed, but if it looks like you’ll need to pull 4% or less from these accounts each year to plug the shortfall then you’re probably in good shape. If you’ll need to withdraw more, then you may need to think about adjusting your lifestyle, saving more now, or rethinking your retirement timeline.[3]

  • How Many Years of Retirement Should I Have Saved For?

On average, men who retire at 60 years old can live another 22 years. On average, women who retire at 60 can live another 25 years.[4] This takes you to your early to mid 80s, depending, but are merely averages. It’s best to err on the side of caution and plan for a longer-than-average lifetime just in case, especially if you have longevity in your family. We assume a time horizon to age 95 in this office when creating retirement plans.

  • How Can I Maximize the Longevity of my Savings?

The simple answer to this is to spend less. It’s the only surefire way to stretch the length of time your savings last. But this may not be possible for you, or at least not possible in all years. After all, retirement is meant to be enjoyed and you may have big trips and big ticket items you want to buy!

It can be tempting to try and invest your way to greater savings for a longer retirement. This usually works against you. Remember, more risk/more reward isn’t necessarily true. More risk simply increases the range of possible returns, both positive and negative. You could significantly shorten the length of time your savings last if you overextend yourself and wind up with a strongly negative year, thereby depleting your savings early.

  • Should I Prepare for Long-Term Care?

Even though you may not need long-term health care, such as a nursing home right now, it can be a major retirement expense in the future.[5] There are insurance options for long-term care that you can consider if you don’t believe your savings will be sufficient to cover the cost of custodial care. If you do decide to get an insurance policy, the cost of that plan will also have to be factored into your expenses in retirement.

Understanding the components of a comprehensive retirement plan is only the first step in executing it. It takes doing the work and knowing the strategies available to you to properly implement a strategy that will work for you. Contact us today for a complimentary review of your finances to take that next step in executing a successful retirement strategy.

 

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Carmichael Hill & Associates, Inc. is a U.S. Securities and Exchange Commission Registered Investment Advisory firm. Registration does not imply that the SEC has endorsed or approved the qualifications of Carmichael Hill or its respective representatives to provide any advisory services. Advisor does not render or offer to render personalized investment advice or financial planning advice through this medium. Advice can only be given after:

  1. Delivery of a disclosure statement by advisor to client.
  2. Execution of our Investment Advisory Agreement between the client and the advisor.
  3. Initial payment of the planning fee or investment advisory fee by the client to the advisor.
  4. Advisor will not solicit or accept business in any state in which she or he is not properly registered or otherwise qualified to conduct business by virtue of a state “de minimis” exemption.
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The information in this web site is based on data gathered from what the Advisor believes are reliable sources. It is not guaranteed as to accuracy, and does not purport to be complete and is not intended as the primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. The identification of specific funds and model portfolios is being made on the assumption that the investor would participate in that investment or portfolio on a long-term basis and only after consulting with their investment advisor to determine their needs and tolerance for risk. With respect to any such identification, there can be no assurance that the fund or model portfolio will in fact perform in the manner suggested.

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