One of my favorite recent radio callers was who I dubbed, “On The Fence Frank.” He called in to my WSB Sunday radio show, “Money Matters,” and asked, “Wes, I have $1 million in my portfolio, but I’m worried that it’s not enough to retire. I’m 61 and married. What should I do?”
Frank very simply asked the questions that almost every soon-to-be retiree needs to have answered before confidently putting their career in the review mirror.
- How much money is enough for a comfortable retirement?
- When do I know it’s time to call it quits?
- What will I do in retirement?
Let’s break these questions down so that you can move from being an “On The Fence Frank” to a happy (and hopefully early) retiree.
How much money is enough for a comfortable retirement? When we talk about retirement, money tends to be our focus. We need to know how much money is enough to sustain our lifestyles for years and hopefully decades.
Interestingly, a million dollars tends to be a default amount where people tell me they can rest easy if they can just hit that mark. Just? And then Suze Orman even recommends that people save at least $5 million before retiring! That’s an overwhelming number! While your journey is personal and your needs are unique, in my research for my book, “You Can Retire Sooner Than You Think,” I found that many happy retirees can actually enjoy a comfortable retirement with half that amount in savings. This $500,000 is a far cry lower than the $5 million that Suze recommends. Of course, having more money in savings provides an even greater cushion, but it’s not uncommon to see retirees land in the happy camp once they reach $500,000 or more.
When do I call it quits? You save for what feels like an eternity, then suddenly you’re staring retirement in the face. How did this happen? How can you be certain it’s time to call it a career after decades in the workforce? In all reality, there’s no perfect date when everything will line up perfectly. If you’re invested in stocks, the market will rise and fall — it’s impossible to time it to align with your retirement plans.
Here’s where one of my favorite rules of thumb comes into play. It’s called the 4% Rule, and at its core, it’s simple but powerful. The 4% Rule says that a retiree can withdraw 4% annually of their initial retirement assets and increase that amount every year to account for inflation. The rule assumes a 50% to 75% portfolio allocation to stocks. You generally don’t want to step away from work and be 100% in stocks. Diversification and asset allocation can protect you against tumbles in the market. If you follow the rule, research has shown that in more than 70% of the time periods tested, money would last over 50 years. As a nice bonus, just last week the founder of this rule upped the ante to 4.5%.
When considering the timing of your corporate exit strategy, you’ll also want to factor in when to take your Social Security benefits. Today, these benefits average $1,400 monthly for single Americans. It’s not uncommon for a couple to bring in about $3,000 a month. Unlike the stock market, when it comes to Social Security, timing is everything. You can start as early as 62 and delay up to age 70. Retirement age is considered 66 if you were born from 1943 to 1954. That increases gradually if you were born from 1955 to 1960. For anyone born in 1960 or later, full retirement benefits are payable at age 67. The amount you receive increases, the longer you delay collecting full retirement, up to age 70.
Play with the numbers to see how much money you’ll have coming in at any given age. For example, if you want to retire at age 62, you could take more than 4% from your nest egg until you begin Social Security. Or you could draw your monthly Social Security benefit “early.” In this scenario, I’d suggest taking Social Security sooner rather than later, so you don’t put too much pressure on your retirement savings at such an early point in your retirement. But if you can draw down 4.5% of your portfolio (slightly more than the 4% Rule) and delay Social Security, that might be something worth considering. My opinion, though, is that if you’re on the fence, taking the monthly benefit over increased withdrawals from your investments tends to make the most sense. Of course, everyone’s specific situation is unique to them, so weigh all options and be sure to speak to your financial adviser about what makes sense for you personally.
Leading up to the date you’ve circled on the calendar, think about how you can save without suffering. Get your expenses down as low as possible. Try living off your projected retirement income to see if it’s comfortable for you. Pay off your mortgage, and don’t take on new debt. Make sure you have a solid plan for health care. Do your best to have everything lined up before you walk away from work.
What will I do in retirement? Money shouldn’t be your only consideration when it comes to a happy retirement. Don’t press pause on exploring core pursuits during the pandemic. Inoculate yourself against boredom today and in the future by exploring what lights you up outside of work. For some of us, working from home and ditching the daily commute has given us time to expand our culinary skills, take our crafting to the next level, restore a classic car or learn a new language. The folks I like to call the Happiest Retirees on the Block have anywhere from three to five areas of interest that keep them busy.
You can take the hobbies and interests you cultivate today with you into retirement and possibly turn them into additional income streams. Who knows, your love of cooking could lead you to volunteer at a local soup kitchen or propel you into the world as a social media influencer.
Don’t believe me? At 82 years old, Stephen Austin, also known as “Old Man Steve,” entertains more than 1.4 million TikTok followers by cooking up simple recipes from his home kitchen. And 99-year-old Iris Apfel’s iconic glasses are eye candy for her 1.6 million-plus Instagram fans. She landed an opportunity to design apparel, accessory and home decor lines for the Home Shopping Network.
Bottom line
It’s never too early to start planning for retirement, and the climb might not be as steep as you think. Get cranking on saving for your future, as well as exploring activities to enjoy in your free time. And when you’re ready, jump into your retirement with confidence, knowing you’ve earned it.
Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than 10 years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
DISCLOSURE
This information is provided to you as a resource for informational purposes only and is not to be viewed as investment advice or recommendations. Investing involves risk, including the possible loss of principal. There is no guarantee offered that investment return, yield, or performance will be achieved. There will be periods of performance fluctuations, including periods of negative returns and periods where dividends will not be paid. Past performance is not indicative of future results when considering any investment vehicle. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. This information is not intended to, and should not, form a primary basis for any investment decision that you may make. Always consult your own legal, tax, or investment adviser before making any investment/tax/estate/financial planning considerations or decisions. Investment decisions should not be made solely based on information contained in this article. The information contained in the article is strictly an opinion and for informational purposes only and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.
