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The Four Most Common Pre-Retirement Questions
By: Jerry Clegg
- When can I afford to retire?
- How much money do I need to retire?
- How much monthly income can I expect in retirement?
- How should my current 401k account be invested?
The Retirement Planning Process:
Question 1 – is answered by combination of different answers. How old are you now? How much have you saved for retirement? How much will your social security benefits be when you plan to retire? Do you have a pension plan to go along with your current retirement plan?
Question 2 – is also answered by a combination of different answers. How much are your current living expenses? How much debt do you currently have? What do you anticipate your monthly expenses to be when you do retire?
The general rule in retirement planning is you will need 80% of your current income to meet your living expenses when you retire. If you do not have a monthly budget worked out for the present, you need to get one done. You can use your current monthly budget to estimate how much you will need for retirement.
Question 3 – will contain several different assumptions. How much money do you anticipate to have in your retirement plan when you retire? How much income will your retirement plan produce each month?
The general rule of thumb is you should not withdraw more than 5% of your retirement plan money annually to use as monthly income. This rule is meant to keep you from outliving your retirement plan money. Will your retirement plan produce enough income using a 5% withdrawal rate?
You will then need to add in all social security benefits you will receive and along with any monthly pension payments you may receive.
Question 4 – is typically based on your current age, how long to your retirement date and your current risk tolerance. Again, using the generally accepted rule for retirement planning, you should take the number 100 and subtract your age from 100. Your age will be the percentage of your retirement plan that should be in “Fixed Income” type of investments. Fixed income means guaranteed rates of return such as money market accounts, stable value funds, etc. The remaining number is the percentage of your retirement plan that should be invested in a very well diversified range of stock and bond mutual funds.
While there are only four most commonly asked questions about retirement planning, most people will find it very beneficial to meet with a professional financial/retirement planning advisor to more effectively answer these questions and help you plan for your retirement.
Jerry Clegg is your Local Financial Planning Expert and owner of Right Financial, LLC in Dallas. Call Jerry today for your FREE financial consultation at 770-505-4536.