Data from the Federal Reserve shows that average savings in the United States at retirement age is only $255,200. So if you find yourself with $400,000 in assets by retirement age, congratulations! You are doing much better than average. But how long will your money last? The answer will depend on your investment allocation, spending habits, and other sources of income. Here are some tools to help you determine your current assets and desired expenses so you can live the retirement you want on $400,000.
One Financial Advisor can help you create a financial plan for your retirement needs and goals.
How to determine your assets and disposable income stream
Knowing what you have available to you will have a huge impact on how long you can reasonably expect your money to last. Every source of income you may have in retirement will reduce the amount you need withdraw from your portfolio. Potential sources of income may include:
In addition to the $400,000 in your retirement account, you may also have assets that can be used to supplement your income later. Assets may include:
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The equity you have in your home, which can be refinanced to reduce your mortgage or sold to buy a smaller home in a lower cost of living area to lower your costs .
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Other real estate properties may be sold or rented, such as vacation homes.
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A second car can be sold if your household no longer needs two in retirement.
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Recreational equipment such as travel trailers, ATVs, Snowmobiles and boats can be sold or rented when you are not using them.
A thorough inventory of your assets can help you determine where your worth lies and uncover new ones. income stream. Maybe you want to keep your family’s winter cabin until your youngest children graduate. Determining what you want to sell and when can help you plan for your current and future expenses.
Determine your desired expenses
You’ve worked your whole life and now it’s time to reap the rewards. While you want to make sure your future is taken care of, you also need to enjoy what you’ve worked for.
It’s hard to come to terms with the realities of old age, but there may come a time when you can no longer climb into a gondola to paddle through Venice, or take a whitewater rafting trip. The time to complete your to-do list is not when you’re in a wheelchair at 90, but when you have enough time, money, and health to enjoy it.
Splurge a bit, but keep an eye on what you’re spending and make sure it’s what really matters most to you. Balancing your desire for a rich life at sixty shouldn’t come at the expense of not being able to afford home health care at eighty.
Traditionally, financial advisors have agreed that the average retiree will need to replace 80% of their pre-retirement income with savings and Social Security benefits. But new research from the University of Michigan’s retirement and disability research center shows that retirement spending declines over time across all socioeconomic levels.
You still need to set aside money, but you may not need to plan to spend 80% of your pre-retirement income each year after you retire.
Safe withdrawal rate
Determining a safe withdrawal rate from your investments for the long term can be difficult. Expert opinions vary, but a widely accepted safe withdrawal rate is followed 4% rulewas created based on Trinity research published in 1998.
Essentially, the rule says you can withdraw 4% annually from a well-diversified retirement portfolio, adjust 4% annually for inflation, and expect your money to last for a little while. at least 30 years.
Using our $400,000 portfolio and 4% withdrawal rate, you can withdraw $16,000 annually from your retirement account and expect your funds to last for as little as at least 30 years. Let’s say, if your Social Security check is $2,000 monthly, you’ll have a total annual income in retirement of $40,000.
That may not be enough for your current lifestyle, so you may have to consider adjusting your priorities and expenses. If it’s not possible to readjust your expenses, liquidating the property, developing a rental income stream, or finding meaningful part-time work may be necessary.
If you pull too much out of your portfolio at the start of your retirement, your investments won’t be able to grow and your existing assets in retirement will be significantly impacted. While you can expect to spend less later, you should still be careful. Working with a financial advisor can help you see the personal impact of today’s large portfolio withdrawals on your long-term financial health.
bottom line
If you never spend your money then $400.00 will last indefinitely. The trick is not determining how long your $400,000 will last when you retire, but how best to spend your $400,000. The more you spend now, the less you will have later. The less you spend now, the more you can wish you could enjoy the fruits of your savings while you still have the energy to do it.
No one can tell you exactly where your worth lies, or exactly when your time will run out. Only you can know what you will feel deeper regrets about – regret for not saving or regret for not spending.
Retirement planning tips
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One Financial Advisor can help you create a financial plan for your retirement needs and goals. SmartAsset’s free tool connects you with up to three vetted financial advisors serving your area, and you can interview the right advisors for you for free to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start right now.
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If you want to know how much money you will have in retirement, SmartAsset’s Free Calculator can help you get an estimate.
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