Watch Daniel DiVizio, CFP®, CRC®, Client Relationship Manager of Signet Financial Management explain what elements you should think about when planning and saving for retirement.
The two main variables that helps individuals plan for their retirement includes the money you already have saved, and the amount of income you will expect during retirement. These two variables are very important to ensure you can live comfortably within your desired retirement lifestyle.
As highlighted in the video, when we think about saving for retirement, we can look at the presented hypothetical to figure out where your savings vehicles, retirement income sources, and household incomes get factored into your desired retirement lifestyle.
This example takes a married couple household that makes $150k annually and analyzes their annual contributions to their savings and retirement vehicles. The following are:
- $20K/year to employment taxes
- $10K/year to savings vehicle contributions(401k, IRAs, etc.)
- $20K/year to mortgage payments until retirement
This gives us a net income of $100K/year which is the given value we need to understand the couple’s current lifestyle income. The next step addresses the two main sources of income after retirement. The couple expects the following:
- $50K/year from social security (each partner receives $25K/year)
- $10K/year from pensions
From here we can see that this particular couple expects $60K/year in retirement income. Given this information, we can take their desired income amount of $100K/year and subtract $60K/year which gives us the remaining amount they need to account for from savings of $40K/year.
Using the 4% safe withdrawal rate rule, we can assume that in order to generate the remaining $40K/year, the couple needs to save about $1M in retirement savings.
The Four Percent Rule is a rule of thumb used to determine how much a retiree should withdraw from a retirement account each year. This rule seeks to provide a steady income stream to the retiree while also maintaining an account balance that keeps income flowing through retirement.Source: Investopedia.com
We hope that this hypothetical example serves as a blueprint for your understanding your retirement goals and needs. For more information, contact your trusted financial advisor to figure out what works right for you.
Need help with saving for retirement? Please contact us, Daniel DiVizio or firstname.lastname@example.org to schedule a time to talk.