According to investment experts, you need a lot of money to retire. Based on the numbers they give, planning a retirement within the means we are accustomed to, can be more than a full time job in itself. How can we meet the high goals that have been set for us?
In this declining economy, many of us are barely managing to stay financially afloat on a day-to-day basis. Now we read reports in financial magazines and on Internet sites claiming that we need to set aside three million dollars for retirement. Is this a viable plan for the average American? Or are we doomed to financial adversity in our ‘golden’ years?
Who Can Afford The Luxury of Retirement?
You probably have not thought about the “withdrawal rate” on your retirement funds. The withdrawal rate is just what it sounds like…the rate at which you withdraw funds from your retirement account. Let’s assume you felt you could live comfortably on $30,000 a year. If your retirement fund has $300,000, then you have a 10% withdrawal rate.
The experts say that you cannot afford to exceed a withdrawal rate over four percent. The thinking behind that statement is simply this: if you go above that figure, you’ll run out of money before retirement! That would mean you’d be on a fixed income of a mere $1,000 per month. How could you possibly meet your monthly living expenses with such meager means?
Time for a Reality Check
Magazine headlines aside, let’s look at this from a logical standpoint. You simply can’t compare your personal living situation to that of a consensus poll. The figures might look eye-catching and provoke you into buying a particular written publication, but isn’t that the point? It’s all about selling an article. This is not to say there isn’t a grain of truth to what the so-called consensus is bringing to our attention. However, it is to remind you to read those statements with a grain of salt.
Just as everyone’s living situation and personal expenses varies greatly, so do the financial requirements for retirement. Planning for the future takes careful thought and a little finesse. So many factors can determine the resources you will need for your retirement. For instance, will you have financial responsibilities that could put you in debt somewhere down the road? How many years off is retirement? Will you have a sufficient source of income once you are no longer employed? What plans do you envision for yourself upon retirement that might alter your way of planning from a financial standpoint?
If you feel you should have no outstanding expenses by retirement age, then perhaps you won’t require such a high rate of investment. Conversely, if you plan to see the world through extensive traveling and living your life on high quality standards, you’d be wise to spend less now and save for later.
What’s Really Important in Retirement?
Upon reaching those ‘golden years’ of retirement, is life really about living lavishly? Does retirement dictate the remainder of your days spent lounging on a sun-drenched island, sipping one umbrella-topped drink after another….buying a yacht and sailing halfway around the world?
Decide what retirement means to you. If you enjoy having a daily routine in your life, you probably only need to pay for one or two vacations a year during retirement. When you figure in your social security earnings, you may be able to get by on much less than 4% of your retirement fund.
What’s really important to most of the older people I know is spending time with grandkids. Being a globetrotting granny is not a realistic picture for most senior citizens. And with low living expenses and some smart choices, you may not need to save $1,000,000 for retirement. Just because you make $40,000 a year now, doesn’t mean you need to make $40,000 a year when you retire. After all, you won’t be paying a mortgage then, will you?
The investment in the quality of life you can live – not the quantity of material possessions you can own will be what really makes your elder years golden. Spending time with family and friends, and taking the time to appreciate the beauty and the love that surrounds you will be the best way to spend your retirement years. And you don’t need a big budget to do that.