How much do you need to retire? That depends on age, inflation, ROR, etc

Publication
Article
Urology Times JournalVol 51 No 06
Volume 51
Issue 06

"There is no simple or universal answer to the question of retirement savings. Many factors must be considered, but your financial adviser should be able to direct you so that you can enjoy a financially stable life once you stop working," writes Jeff Witz, CFP.

Jeff Witz, CFP

Jeff Witz, CFP

The most frequent question we hear is, “How much do I need to save for retirement?” Plenty of online resources offer rule-of-thumb answers, such as withdraw only 4% of assets annually so as not to deplete them too quickly. However, a ballpark figure leaves plenty of room for failure. Because cookie-cutter plans don’t take specific circumstances into account, they can leave you with an empty account in the twilight of life. When it comes to retirement planning, there is no one-size-fits-all.

To ensure that you can enjoy retirement in the manner you choose, it’s important to plan carefully. At a minimum, you must consider the following.

Retirement income needs/wants. Calculate current expenses and think about how you plan to spend your retirement. If you pay off your mortgage, remain in good health, live in a city where the low cost of living is low, and engage in inexpensive hobbies, you might be able to get by on less than 100% of your working income. But if you plan to travel extensively, need to pay for health insurance, and will maintain high levels of debt, even 100% of your working income may not be enough. In addition, factor in all major purchases you plan to make during retirement via a budget that breaks down all possible expenses. This will help you hone in on a monthly or annual figure.

Retirement age. Many physicians want to retire before age 65, but that typically requires significant savings. You’ll want to make sure that your savings and other sources of income, like Social Security benefits, will carry you through what could be a very lengthy retirement. Delaying retirement for a couple of years can greatly reduce the amount you need to save.

Life expectancy. Most people use average life expectancy data to estimate length of retirement. But remember that “average” means you have a 50% chance of living beyond that age. To ensure that you don’t run out of money, it’s better to assume that you’ll live at least a few years past the average. When deciding how many years to add, consider parental longevity as well as the state of your health.

Rate of return. The rate of return on your investments determines the amount of savings you’ll have amassed. Your expectations should be based on average returns over a very long period. Again, it’s better to be conservative and assume an ROR that is lower than long-term averages.

Inflation. As we have seen during the past year, even modest levels of inflation can diminish purchasing power. Over a long period of time, inflation can take a very high toll. For instance, after 30 years of 2% annual inflation, the purchasing power of a portfolio will decline by 45%. Despite recent higher-than-usual levels, when estimating inflation it is best to consider long-term rates because your retirement could last decades.

Retirement tax rate. If a great deal of your savings is invested in tax-deferred instruments that will be subject to taxation upon withdraw, your tax bracket can significantly affect the amount you’ll have available for spending. You may find that after retirement your tax rate is the same as or higher than it was before.

As you can see, there is no simple or universal answer to the question of retirement savings. Many factors must be considered, but your financial adviser should be able to direct you so that you can enjoy a financially stable life once you stop working.

Effective June 21, 2005, newly issued Internal Revenue Service regulations require that certain types of written advice include a disclaimer. To the extent the preceding message contains written advice relating to a Federal tax issue, the written advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer, for the purposes of avoiding Federal tax penalties, and was not written to support the promotion or marketing of the transaction or matters discussed herein.

The information contained in this report is for informational purposes only. Any calculations have been made using techniques we consider reliable but are not guaranteed. Please contact your tax advisor to review this information and to consult with them regarding any questions you may have with respect to this communication.

MEDIQUS Asset Advisors, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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