How you’re being misled by retirement-saving advice

As baby boomers approach and reach retirement age, there’s a lot of anxiety regarding whether or not they will have enough financial resources.

Many somewhat simplistic formulas have been applied to this question, each of which is at least somewhat useful — but each falls far short of doing the whole job.

Example: You can afford to retire when you have investment assets equal to (fill in the blank) times your current cost of living. This is good because it focuses on replacing a pre-retirement cost of living. But it doesn’t take other assets, obligations, income and uncertainties into consideration.

There’s really no way to get a good answer to the question without rolling up your sleeves and asking yourself some probing questions. Questions like these:

If I could continue my current income for the rest of my life, adjusted for inflation, would that be enough to meet all my anticipated needs in retirement?
If I retire now, how many years do I need my investments to support me?
Is it OK with me to use up all my investments by the time of my death, or do I want to provide for others in my will?
Am I really able and willing to scale back my retirement lifestyle, if necessary, should my investment returns fall short of my expectations?
Alternatively, can I reasonably count on being able to work part-time, if necessary, to make ends meet?
How anxious will I be if I plan to have my retirement income vary from year to year depending on how well my investments perform?
That’s a lot to think about.

Over the years I have found that it’s helpful for people to study some tables of numbers that show hypothetical investment returns and withdrawal rates.

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