How to plan for a comfortable retirement?

Various experts on retirement like to give their own estimates regarding how much you need to save: some say, “close to $1 million”, while others say, “80% to 90% of your yearly income before quitting work”. It’s also been said, “to save 12 times what you used to make annually”.

You may be wondering, “Is this true? How much do I really need to retire? Why are all of these answers so different from one another?” 

The fact is, when it comes to retirement planning, there is no “one size fits all” answer, as there are several variables to consider.   

A good general rule of thumb is to try to save about 15% of your current gross income towards retirement each year. If you are starting late in your retirement planning or have a shorter time horizon to save, you may need to save more than 15% of your income each year to catch up. On the other hand, if you start saving early, you may be able to save less than 15% of your income each year and still meet your retirement goals. 

You also need to consider the appropriate level of risk for your age. A high-risk tolerance might be ok in your early and middle years, but those who are in the later stages of life don’t have as much time to make up any potential losses that occur.  Decreasing risk as you age is important. 

The bulk of your nest egg, especially that which you have allocated for lifetime retirement income, should act as your foundation for retirement. In such, it should be kept safe.  A key part of retirement planning is protecting one or some of your retirement savings accounts so that the funds will grow safely in order to supplement Social Security Income, etc. One way to do this might be with an annuity. 

What does an annuity have to do with retirement income? 

Annuities typically provide an option for lifetime income or for income over a specified period of time. Some annuities have the option to “turn on” immediate income for life with tax-deferred growth in the interim.  This can be valuable when combating inflation, especially for people who haven’t been able to save as much. Other beneficial features of certain annuities, like a Fixed Index Annuity, also include benefits for future financial needs like nursing home, assisted living, or home health care. Many can also provide valuable legacy benefits for your heirs after you are gone. 

The idea behind most annuities is to achieve a reasonable rate of growth over time, without risking your nest egg to obtain that growth. This isn’t true for all annuities; for example, Variable Annuities can still experience losses and are often loaded down with fees. But safe money experts like those at Summerlin Benefits Consulting can help you assess your savings, prepare for longevity in life, and consider your options.  Regardless, when used correctly an annuity should help extend the savings you do have, even if you haven’t been able to save as much as you had hoped to for retirement. 

Still working and wondering how much you need to save?  

There is no magic dollar amount that can answer this question because everyone’s needs are different.  When you retire, the goal should be to receive a monthly paycheck that covers your annual expenses and provides an adequate cushion for you to be able to enjoy life as well.  A stress-free retirement usually also means having a little overage that you can set aside for emergencies.   

First, figure out how much money you will need each month for your mortgage/rent, car payment, and utilities, etc. Exclude discretionary expenses.Then determine how much money you will get from Social Security Income and/or any pensions you may have.   

If these guaranteed income sources do not cover your monthly expenses, determine how much you would need to pull from other retirement accounts like a 401(k), Roth IRA, IRA, or an annuity. Prepare for life expectancy well into your 80’s or in some cases longer and apply those figures. This should give you an idea of how much money you need to save.   

If your savings don’t seem to be on track, make adjustments where you can and/or consider ways to stretch your savings. This might seem daunting, but it doesn’t have to be. Consider the following example about Joe’s Story. 

Joe’s Story: 

Joe is 60 and plans to retire at 67.  He estimates his retirement expenses will be about $3,000 per month. He will get $1,700 from SSI and has a $600/mo pension. This means he will need to pull, at the least, $700 per month from his IRA. He wants a cushion for occasionally going out for dinner and drinks with his significant other, so he decides that he will need to take $1,000 per month from his IRA. His IRA has $100,000 in it. Joe is healthy and both of his parents lived into their late 80’s.   

If Joe’s IRA is invested and averages a 5% return over the next 10 years (also assuming there is no market correction and he doesn’t lose any money along the way), he will unfortunately run out of money in year 11 of his retirement, and Joe may very well be around for much longer than that.    

Joe needs to make a change to his plan. Joe may either have to work past age 67 to accumulate more wealth before retirement or he might need to compromise on his quality of life either now or in retirement to save more. Or he will need to take a key step to ensure that his $100,000 doesn’t run out on him in 11 years, like introducing a Fixed Index Annuity with a Protected Income Value. 

One of the ways a Fixed Index Annuity can be key to your retirement planning is because with an FIA you won’t have to worry about running out of money.  Even if your account balance eventually does hit $0.00, the annuity contract will still continue to pay a monthly income to you for the rest of your life- so you are certain to never outlive your savings.   

In Joe’s case, if he rolls his $100,000 IRA into a Fixed Index Annuity with a Protected Income Value and begins taking income payments in 7 years when he retires, he potentially could receive as much as $1,026 per month from his annuity. This is based on the annuity terms and market performance of course, but even if his account balance does still hit $0.00 in 11 years, it won’t matter because his monthly payments will still continue well beyond that; as in, for as long as Joe is living.    

Taking the first step 

There are a lot of options for savers of all kinds. Big savers, small savers, and everything in between- everyone needs guidance at times.  With the right strategy, you can take back control of your savings and prepare for the future.  Regardless of where you are in your retirement planning journey, Summerlin Benefits Consulting can help you navigate the best practices towards reaching your personal retirement goals. Give us a call today to schedule time with one of our professionals!