It sure
would be nice if there was some way to be absolutely certain the money won't
run out.
Stacy Johnson • May
4, 2020
Welcome to the “2-Minute
Money Manager,” a short video feature answering money questions submitted by
readers and viewers.
I’ve had variations of
today’s question many times before. It’s about being on the cusp of retirement
and wondering if you’ve saved enough to live the retirement life you imagined.
Watch the following
video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to
read the full transcript and find out what I said.
You also can learn how to
send in a question of your own below.
For more information,
check out “The Only Retirement Guide You’ll Ever Need”
and “20 Ways Retirees Can Bring in Extra Money in 2020.”
You can also go to the search at the top of this page, put in the word
“retirement” and find plenty of information on just about everything relating
to this topic.
And if you need anything
from tips on maximizing your Social Security to finding the best financial advice, be sure and
visit our Solutions Center.
Got a question of your
own to ask? Scroll down past the transcript.
Don’t want to watch? Here’s what I said in the video
Hello, and welcome to
your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is
brought to you by Money Talks News, serving up the best in
personal finance news and advice since 1991.
Today’s question comes
from Steve:
“I am 67, and Carolyn is
63. If we both work till 70 (the plan), we will have combined Social Security
incomes of over $6,000 per month. We’ll have no mortgage and between $800,000
to $1 million in savings. We are stressing about retirement and would like to
relax a bit. Can we?”
OK, Steve, let’s discuss.
Steve says he and his
wife plan on working until they’re 70. Combined, they’ll get more than $6,000 a
month from Social Security, and they’ll have close to $1 million in savings. So
let me ask you: Will they have enough?
Answer? There’s no way to
know without knowing what they plan to spend.
If you’re approaching
retirement, here are two simple steps to figure out if you’ll have enough.
Step 1: Figure out what you’ll have
Steve did a good job of
guessing how much he’s going to have when he retires: about a million bucks.
But here’s something he could also do: Figure out how much that could add to
his income.
You can do this by
dividing your total expected savings by your life expectancy. Example: Say,
like Steve, you’re going to retire at 70 and expect to have a total of $1
million in savings. You estimate your joint life expectancy is 20 years. Divide
$1 million by 20 years, and you get $50,000 a year.
Now, Steve has a very
rough estimate of how much monthly money his savings will generate, providing
he’s willing to spend down his capital. Add the couple’s Social Security of
$6,000 a month, or $72,000 a year, and Steve and his wife can expect to bring
in $122,000 a year.
Obviously, we hope Steve
and his wife will be growing their savings during retirement, not simply
spending their principal. This exercise is a quick, down-and-dirty computation.
Again, take what you’ll
have in savings, divide it by your life expectancy, add what you’ll get from
other sources, and you’ve got a quick income number to work with.
Step 2: Figure out how much you’ll need
All things being equal,
you’re probably not going to need as much income in retirement as you’re
spending now. On the other hand, depending on how you intend to spend your
retirement years, you could be spending more than you are today.
Either way, retirement
planning means confronting your future. Are you going to be sitting on the
porch or staying in luxury hotels as you travel around the world?
If you have no idea or
can’t imagine how much you’ll spend during your retirement years, use the
amount you’re spending now.
If you don’t know how
much you’re spending now, this is a great time to figure it out. Use some sort
of budgeting app, or simply write down everything
you spend until you have a handle on it.
After going through these
two steps, you’ll have at least some kind of idea whether you’ll have enough.
Granted, this is an exceedingly simple look. You can — and should — drill down
a lot more.
The sooner, the better
One last tip: When it
comes to retirement planning, the sooner the better.
There’s no reason to feel
like an idiot as retirement approaches and you don’t have enough. Plan early;
you’ll have more options. Maybe you can put away more. Maybe you can get a side
job and make more money. Or, maybe you can think about where you might be able
to live for less when you retire.
In short, the sooner you
start confronting your likely retirement reality, the better off you’re going
to be.
Make sense?
Hope that answers your
question, Steve.
Now, what about you? Got
a question of your own to ask? Then, do what Steve did: Simply hit “reply” to
any Money Talks News email newsletter and fire away. I can’t answer every
question, but I do my best.
And if you’re not getting
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you richer.
I’m Stacy Johnson. See
you here next time!
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About me
I founded Money Talks
News in 1991. I’m a CPA, and I’ve also earned licenses in stocks, commodities,
options principal, mutual funds, life insurance, securities supervisor and real
estate.
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