One of the most common retirement planning concerns is understanding how much money you'll be able to withdrawal each year from your retirement account. Which, in turn, leads to another critical question: How large does your nest egg need to be?
The ideal retirement scenario is to achieve and maintain the lifestyle you want while sustaining the principal of your retirement account. It's similar to how a non-profit operates when they receive an endowment gift. The non-profit will invest the entirety of the donation and only use the interest or gains on the investment--without ever touching the initial principal. In the same way, you need to estimate the amount of retirement savings you will need to build so that you can live on the yearly gains in retirement--minimizing any withdrawal from the primary account investment. This way, the account will be naturally sustaining throughout the entirety of your retirement.
There are many considerations for your retirement and sustaining your retirement savings, starting with what age you plan or hope to retire. Most retirement planning projects a 30-year time horizon, from 65 years of age to 95 years of age. While many people are working until around 72 years of age, they are staying active and earning more than previous generations.
That's why you need to make the most of your earning opportunities during your peak earning years. For instance, you should be participating in your company's 401(k), especially if they offer a matching contribution, equal to or up to a certain percentage of your initial contribution. There are also other opportunities, such as compensation deferment and IRAs (Individual Retirement Accounts), and employee stock purchase plans, among others. An experienced financial advisor can help you to maximize these opportunities while making sure your portfolio is divested to minimize risk.
To begin the cash flow planning process in preparation for retirement, start by asking yourself the following questions.
- How much money are you comfortable living today? Account for whether you wish to maintain, downsize, or improve your lifestyle into retirement.
- What would you like to decrease or increase in the future? Would you prefer downsizing from the family home or acquiring a retirement home for the winter?
- What is your overall health and well-being? Consider also the health of your spouse or significant other, or any other family members that you provide for.
Once you have a clear understanding of your current situation, you'll want to think ahead into retirement. You'll want to work with your financial advisors on planning for cost-of-living increases due to inflation, tax preparation planning, understanding which investments are tax-deferred, tax-free, and which require income or capital gains tax, as well as estate planning.
Considering every facet of comprehensive retirement planning can feel overwhelming. Our team of experienced wealth management and financial advisors will help you to view the big picture, maximize your earning opportunities, minimize risk, and manage your portfolio to help you pursue your retirement goals.
If you have any questions or concerns regarding your retirement plan, feel free to reach out to any member of our team at Hapanowicz & Associates, or you can reach out to me directly at bobby@hapanowicz-associates.com.
