Part four of a series on financial planning for retirement
I’m getting ready to retire. No, I’m not retiring anytime soon. But I’m a financial planner and investment manager, so I plan and you should, which is the reason for this little series. So far, we’ve talked about knowing what you spend, planning for big expenses, and evaluating guaranteed income; today we try to reconcile the three.
This is really quite simple: just have enough investments to supplement your income. For those for whom the last sentence is true, you can stop reading. Now for the rest of you…
Assuming you want investments to provide money during your retirement, you would first check to see if your mutual fund is still close to what you need. I’ve mentioned the 4% rule in the past. Ignore that for now. Instead, look at how much income the investments are earning need to provide each year.
Is the income less than 3% of your total investments? I doubt you will have any problems. Are you 60 and need 7% to survive? problem In the middle or late in life? It depends
That’s the problem with writing this section. I have too many unknowns. If you need investments to give you 10% every year and not run out regardless of market conditions, it can definitely work, if you’re 95 years old.
How you invest can also make a difference. As you can imagine, having all your money in short-term US government bonds creates a very different scenario than having all your money in an S&P 500 (stock) index fund. Neither are optimal if you need to live off investments.
Then there’s how flexible you are. Maybe your Social Security and pensions cover all of yours needs. Your investments only exist to buy you a new car instead of a used one, a trip to the Bahamas instead of the Discovery Channel, and eating out instead of cooking every night. In that case, if 6% pulls from your investment portfolio is what you i want0% draws will keep you comfortable.
On the other hand, if you need your investments to kick out that 6% or you can’t afford the rice and beans or your electric bill, then you might have a problem.
All this to say, at this point, we must part ways. You need to go online and learn about financial planning, investments and the like. Or you need to find someone to hire. Either way, you’ll have someone who knows you, your situation, your flexibility (budget, not yoga), your tax bracket, the connections you need to support or who support you, your tolerance for market volatility… you get the idea.
Or you can ignore all of this and just hope things work out. That is the most popular option.
May Ukraine be free.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls investment management and retirement planning firm and author of Investing in the real world.