During this coronavirus pandemic, some of you who thought you were going to work forever have either lost your jobs or your jobs have lost their luster. This may have accelerated your retirement plans and you feel a little unprepared.
So let's get you ready.
Being comfortable in retirement is based on the amount of money you have coming in from your pensions, Social Security and investments, minus the amount of money you spend.
Pretty basic, right?
It is easy to know how much you have coming in from Social Security and your pensions, but you have decisions to make regarding when to take them. These should be carefully considered, but the outcomes may be less variable than you think.
How much to take from your investments is more complicated.
The three factors that affect this are how long you need the money to last (your life expectancy); how much you want to leave to heirs or charity; and how the money is invested.
These factors combined determine how much you can withdraw from your portfolio to meet your wishes.
How long you want the money to last has the most significant effect. Delaying retirement increases your annual withdrawal amount because your money can grow for another year and you will be living off your investments one less year.
How much you want to leave to charity or others has an effect, too, because that money is treated differently than that you wish to spend.
How you invest is especially important. Some people are operating on old thinking. There was something called the 4% rule, where you could spend 4% of your assets in your first year, increase your spending by inflation in subsequent years and your money would last for 30 years.
But if safe investments are yielding only 1%, you need more money in investments with much higher returns to make that work. That is the same problem with having your age in bonds and the rest in stocks. The math in the current environment stinks.
In this environment, you want to have a bucket of cash for only your next two to three years of portfolio needs and then invest the rest based on your risk tolerance.
Understand your retirement lifestyle. Calculate cash withdrawals by life expectancy and legacy, but know that even $10,000 can make a huge difference in how much you need your investments to earn.
Spend your life wisely.
Levin is the chief executive and founder of Accredited Investors Wealth Management in Edina.
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