PRESERVE YOUR NEST EGG

How long will your savings last?

By Robert Brokamp of The Motley Fool

There you sit with a finite pile of savings from which you will need to take all or most of the money to support your retirement spending.

The accumulation phase of life is nearing an end.

How much of that stash can you safely take each year to ensure it lasts your lifetime? Will you take the same amount annually? Or will you just buy all the cool toys and vacations you've always really wanted, and let your slightly older self deal with the fallout a few years later?

All of these questions boil down to one over-arching theme that we've thoughtfully put into this question: How long will your money last?

The "70% to 80%" rule of thumb is based on the assumption that many of your current expenses will go away in the golden years.

For the most part, this is true. Once you kiss the boss goodbye, you'll no longer endure the following:
Work-related expenses,
Social Security taxes
Contributions to retirement plans
Mortgage payments, (if your house will be paid off)

There are two other ways your expenses might decline.

First, retirees tend to downsize – but the savings might not be there.

With no need to keep the four-bedroom house now that the kids are grown, for example, some pensioners flee the big house for the something smaller. However the cost to move into – and maintain – a new home or retirement village can still be quite expensive.

However, some require the same level of income in retirement they enjoyed while working.

How? It comes down to this: If you're not making money, you're spending money, particularly in the early retirement years.

Another big expense is health care.

A survey in the Journal of Gerontology found that 61% of couples age 70 and older and 54% of single adults spent at least 10% of their retirement savings on health care. A startling 45% of couples spent more than half of their savings to medical bills.

Medical insurance is not free (there are on-going premiums), and it doesn't cover everything (e.g., most long-term care).

The real price of leisure

So what will retirement cost you?

The best research we've come across concludes the following:

A "safe" withdrawal rate ranges between 4% to 6% of a retiree's starting portfolio.

The accuracy of that approximation depends on your age. If you're 65, then that estimate is quite accurate; if you're 25, thankfully you have many decades to improve your lot.

CONCLUSION

But the simple answer to all of this is – if you want an income of $50,000, this equates to 5% of $1,000,000. And only a portfolio of residential real estate is inflation protected.

Let us help you calculate what you can expect (and what you'll need!) when you retire.

Contact me – Bernard Kelly - anytime at admin@retirelaughing.com