Monday, January 24, 2011

Because you will need to retire?

Part 2 of 2

How much income you will need when I'm retired?

The income that I am talking about here is "guaranteed" elements such as social security and pensions that we gained from many years of work. All of us will receive social security benefits based on what we have earned and how many years we have worked. Some of you will receive a pension, even if this advantage is slowly fading from the scene as employers are moving toward contributions individual 401(k) deferred taxes or similar programs that remains for us to manage our.

For this blog, I used the SSA calculator to estimate what would be the benefits for the worker who had income this year in support of a $ 50,000 noted above. This puts the worker in the above category average for earnings so I used to build a history of 35 years of work required to calculate the expected social security benefits in retirement. The SSA uses the first 35 years of earnings adjusted for when he had gained to calculate what is your benefit. This is information that you receive each year from SSA when they inform which can be your benefits. (Background, these are part of the social security calculator by SSA that gives you the ability to insert the actual amounts of income each year or each precondition that you want. For this blog, I assumed the person was $ 55,000 this year that he put the above average income for social security calculator. Then backup the same amount each year to reflect how the income of the person would change over time.)

A retired person, today, those who chose to wait for their full retirement age would receive a monthly benefit of $ 1,861 ($ 1489 if elected to start it at 62 years old). This would be an annual income of $ 22,332. If there were no increases in more than 20 years, that would provide $ 446,000. An increase of 3% on average each year, the benefit would increase to $ 600,000. Over 30 years, the amounts are $ 669000 with no increase and $1,062, 000 with the annual increase of 3%.

Your spouse is also entitled to social security benefits. In this example, you would be entitled to a benefit equal to ? the husband because he hasn't had a history of the income of her own that could provide a superior performance. In this case the monthly benefit would be around $ 930 or $ 11,160 per year. This would provide $ 223,000 over 20 years and $ 334,000 in 30 years with no increase in inflation. With inflation, the amount would be $ 300,000 over 20 years and $ 531,000 more than 30 years.

Combined household income from social security would be between $ 669000 and $ 900,000 over 20 years and among $ 1,003,000 and $1,593, 000 more than 30 years.

For this article, I've assumed that the couple had no pension from their employer; If you have a pension, you have to factor in your plan. Most private pensions do not provide for an annual increase. If this is your situation, the calculation is rather simple – multiply the annual amount for 20 or 30 years to get what you get is the cumulative amount. If you have a public pension and provides an annual increase, then you need to factor in what will provide in additional income over time.

How much should I save to retire?

The answer to this question is a direct function of what we respond to the questions above two plus how we managed our investment portfolios during our life date as well as retired. The simple answer is that before we start saving, the more we have to save each year and the way in which we invest the money (conservative versus aggressive) much easier it is to have enough money to have an enjoyable and worry-free retirement.

Based on my couple, we can see that they have an income that will provide a significant amount of their incomes must meet their lifestyle, but will need income from their portfolio of investments to meet their needs. In short, they will need between $ 531,000 and $ 300,000 for 20 years (1.2 million social security spending less than $ 669000 or $ 900,000). If you think they will live 30 years, the numbers are between $ 897,000 and $ 407,000 (1.9 million of social security costs less than $ 1,003,000 and $1,593, 000.

If they did anything on their investment, then the amounts observed are what they need but that is a rely totally unrealistic. There are two components to the image of investment that you need to consider. One is the amount that they saved to date; the second is what can/will earn on this money going forward. Suppose they did 5% each year, the money that they saved per day that are retired. If they had $ 500,000 to start, this money would be the last 29 years if their security social media increases of 3% each year (the same increase as their costs increase every year). Increase your ROI at 6% each year and that they would have $ 255,000 left after 30 years. Become an aggressive investor (not my recommendation) and earn 8% and the investment balance becomes $1,434, 000 after 30 years.

If this pair has 600,000 dollars saved when they started the pension, the balance at the end of 30 years would be $ 385,000 rather than the negative balance mentioned in the previous paragraph. As you can see, there are several ways to get to that stage of rest comfortable and have enough money to bring to you through the rest of your life.


In this blog we have covered how to figure out what will be the total expenditure for a prolonged period of retirement of 20 or 30 years and the components of such expenditure.

We have identified what social security benefits at the same time. Finally we have identified what would be the required amount of investments and the investment returns have to be earned to cover the deficit between revenues and expenditures.

A note of caution to consider in this blog: I assumed that it would pay income taxes on the income side because they were investing in an IRA from your years of work. If this investment portfolio was in a Roth IRA or a taxable portfolio, withdrawals from these retired does not give rise to taxable income and social security benefits taxable would not even. This is fodder for discussion at a future!


Francis St. Onge, CFP ?
Total financial planning, LLC
Brighton, MI

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