I don’t know if you can help me. I may have to be on my own soon. I’ve saved close to $150K in my personal savings, pension and 403B. I’m 38. I think I have at least 12 years where I can work full-time at the pace I’m going now.
I can save $11,250 per year in my 403B and $6,000 per year in my pension (work pays this), and can save $1,000/month after bills, plus about another $2,500/year due to bonuses and such. Is there any chance I can make it on my own? Will I have enough to retire? How can I learn about investing so that I can make sure I do this wisely?
Goal:Retire in 12 years
Progress to goal:Now- $150,000 in savings and investments.
Ongoing-Between you and your employer you anticipate adding to your retirement funding about $31,750.
Bravo for asking about retirement at age 38 and not later. You tell us a little about your situation and it shows that you are an impressive saver. You are doing one of things that is so hard for many people– saving in a disciplined way.
Will it get you where want to be in 12 years? This is where it gets tricky. What sort of lifestyle are you looking forward to? Is retirement sitting in the backyard and reading? Is it traveling all over the world? One is a lot more expensive than the other
So start with your imagination. What do you imagine yourself doing when you are retired? Will that be a more expensive lifestyle than your current lifestyle? You will have more time available. You will be able to shape your days with a kind of freedom you might not have experienced since childhood. It is a golden opportunity to explore your interests
Next look at your current spending in detail. How will that change? When you are retired, what do you think all of the monthly expenses will total? That includes having film developed, having the piano tuned, buying cat food, paying ongoing debt, paying for your medical insurance since at 50 you will be too young for Medicare, etc. Once we know that estimated number then we can calculate the size of the money tree. Is it like a table-top Christmas tree or a giant Sequoia? What are the branches made up of? Social Security, a pension, other sources?
Retirement planning is about a set of assumptions and those assumptions need to be reviewed at least every three years
Assumptions that relate to you: Are you in good health? Is your family long-lived? Will you have to take on the care or support of another person? Will you be able to stay employed for 12 years at the current pay? Will you work after that at reduced pay or would you like to be completely retired?
Financial assumptions: How will inflation effect you? Are the things you like or need subject to a higher rate of inflation than the general consumer price index? Given the types of investment you currently own, what might those types of investment earn? What have they earned on average over the last twenty or thirty years? Can your monthly expenses adjust for an increase in income taxes and/or property taxes?
You are right to ask about learning to invest so that you can make wiser decisions. There are many fine books on the topic. Plan to spend a few hours at a library. Take five or six books off the shelf and see which one presents material in a way that is clear and helpful to you. Give yourself time to think and gain a comprehensive overview. Don’t just run after snippets of advice from this source and that. You don’t sound like the kind of person who would do that.
After the book session, if you want to engage the services of a professional planner you will be better prepared for the conversation. Setting your goal not just in terms of years until retirement but also in terms of the monthly need is crucial. To give you a rough calculation of how much you will need for retirement use Penelope’s Rule of 20. It says that if you were 65 today and wanted to retire and have throughout your retirement the equivalent of $20,000 to live on, you would need about $400,000. That’s 20 times $20,000.
In your age bracket, multiply the target number by 3 then by 20. So $20,000 times 3 is $60,000 and that times 20 is about $1.2 million. That’s a good size money tree. Don’t be frightened by that figure. That number adjusts the $20,000 for inflation all through your working life and a long retirement.
Once all the calculations are done for your specific situation, you may find that your assets are on target. To ease your mind, consider having a detailed plan developed by a financial professional. Good luck and keep saving.
Penelope S. Tzougros, Ph.D., ChFC, CLU
Dr. Tzougros is an author, speaker, radio show host and Registered Representative Securities and additional investment advisory services offered through WS Griffith Securities, Inc. Member NASD/SIPC. 95 Sawyer Road, Suite 500, Waltham, MA 02453. (781) 893-0597.
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