There are numerous components to retirement planning, but two questions must be addressed before anything else.
At what age do you intend to retire? How much savings are required for retirement at that age?
Retirement Age
Although many people intend to retire later, 65 continues to be a common target age. A common retirement savings target is to accumulate $5 million. Let’s examine whether it will be sufficient for you to maintain your retirement and the elements you will need to consider.
The short answer is that you can most definitely retire on $5 million at age 65, though there are a few questions you’ll need to get the full picture before we can say for sure. But, depending on your way of living, you might need to change.
If you want to know whether you have enough money saved for retirement, you need to consider these three basic factors:
- Growth rate. Your retirement funds should ideally not be sitting dormant in a savings account but rather be invested in the stock market or other assets that will increase in value. Your money will last longer if it grows at a higher pace. In fact, in theory, your money should last forever if you have a high enough growth rate and a low enough withdrawal rate.
- Drawdown rate. This is the rate at which the principal is withdrawn. Although it would be wonderful to exclusively rely on interest and development, as was already mentioned, most people cannot do this.
- Withdrawal rate . This is the annual flat-rate payment you will be required to make. Obviously, your withdrawal rate directly affects your drawdown rate.
Make sure it keeps growing while you’re retired if you want your $5 million to last as long as possible when you retire at age 65. A clever, tactical asset allocation plan can help you achieve this.
Fundamentals Of Withdrawal, Drawdown Rates
Due to the lower risk involved in these investments, most people begin to taper their portfolios in the direction of fixed-income investments as they approach retirement. The issue, though, is that fixed-income investments don’t often offer big returns.
You must strike the ideal mix between having a high enough growth rate and protecting your wealth.
Because of their close ties, these two figures are grouped together. Finding out how much money you’ll need annually is one of the most important things you’ll need to do while preparing your retirement.
Generally speaking, it is advised that you budget to withdraw roughly 80% of your pre-retirement income.
You can, however, decrease your drawdown rate in a number of ways. To reduce your housing expenditures, you could downsize your house; if you wanted to cut down on your entire cost of living, you could even move to a more reasonable location.
Some straightforward financial cuts are possible, such as cutting back on eating out as much. Costs associated with healthcare are one item you shouldn’t overlook. In addition to having access to Medicare, as you age, you’ll probably have greater healthcare demands. Include this into your planning.
Read more: Top 5 Affordable And Secure Retirement Destinations In The US Under $2,000 Per Month