We have all been told that we will live longer, and need more retirement funding than our parents did. But have we prepared? I recently sat with one of my clients – she’s 52, single, three children, owns two homes, and is starting to consider when she can retire.
We looked at her portfolio – she’s not the best I’ve seen at savings, but she’s done rather decently for herself. She still has one mortgage – but that will be paid off within the next six years. She still has kids to put through college – and she needs to consider long term care coverage. Her question, as with most of us, was “When can I safely retire?”
My most important advice to her – wait to file for Social Security. Why? Her benefits will double if she waits and files at age 70 vs. age 62.
If she still wants to retire before age 70 – we can make that happen. We can draw more from her investments and savings to offset what Social Security would have provided. Then, when Social Security benefits come in – she can draw less from her savings. It’s all a balancing act.
Her questions then revolved around how long her savings and investments would last. Here’s a good rule of thumb to follow when considering drawing from your investments to fund your retirement. This rough calculation is based on a balanced portfolio of stocks, bonds and cash, and assumes the withdrawal percentage is based on your portfolio’s starting balance:
- Withdraw 3% per year = 50+ years funding source
- Withdraw 4% = 33 year funding source
- Withdraw 5% = 20 year funding source
- Withdraw 8% = 12 year funding source
- Withdraw 10% = 10 year funding source
All in all, after sitting and calculating and probably most importantly – planning for what her financial needs will be in retirement that will provide her with the lifestyle she has worked so hard to retain – she is waiting until she is 70!
Now she has a plan. Do you?
