How a lot do I must retire? High monetary advisors weigh in
There are a few simple rules of thumb, such as: For example, saving 10 times your income by retirement age, although experts recommend using a retirement calculator to get a more accurate picture of your pension number.
However, the old rules may no longer apply.
“There isn’t necessarily a one-size-fits-all solution,” said Christopher Schreiner, certified financial planner and chief operating officer of Reston, Virginia-based Mason Investment Advisory Services, which is 13th on CNBC’s 2021 FA 100 list.
“Spending will always be the most important variable,” he said for retirees. “The perfect investment solution cannot overcome someone who spends beyond their means.”
In addition, there is a good chance that your healthcare costs are higher than expected, even now. Especially if you retire at the age of 65 before being eligible for Medicare.
Financial advisors have also been using the so-called 4% rule for retirement income for years: pensioners can draw 4% of their total assets to live on each year, while keeping an account balance of 30 years.
Longer retirement in the face of so much economic uncertainty, however, also tests this standard.
“A 35-year horizon with interest rates at historic lows could make 4% more difficult,” said Matthew Young, president and CEO of Richard C. Young & Co., based in Naples, Florida, ranked 5th on CNBC’s FA 100. “I tell clients that maybe you should consider 3% just in case.
“We just don’t know what kind of environment we’ll have in terms of returns over the next 15 years,” said Young.
The typical view of asset allocation has also changed.
Steven Check, president of Check Capital Management in Costa Mesa, California, which ranks # 4 on the CNBC FA 100 list, recommends doing one 80% allocation to stocks – even an S&P 500 index fund – for someone who retires at age 65. The S&P 500 stock index is up 16% since the start of the year and about 30% over the past 12 months.
“This is higher than what you’d normally recommend, but it would have worked fine in the past and I think it’s even more necessary with interest rates this low,” Check said of a portfolio that compares to a. heavily weighted on stocks and equity funds is more traditional retirement portfolio, heavily weighted on bonds and cash.
“Projected returns will not be as good because of stock valuations and bond yields,” he added. “The models based on past returns cannot be projected into the future.”
Check also recommends a “two-bucket” approach, where money is spent in stable, liquid assets like money market funds and short-term bonds for about five years, and the remainder invested in stocks for long-term growth.
Even if you spent 4% of your wealth in the first year (and increased it by 3% every year due to inflation), your money would last for 35 years, he said.