2010-05-01 What's the Price Tag on Your Retirement?How much will retirement cost? You can determine the “price tag” with a few basic steps.
First, tally up your spending, including recurring monthly expenses like electricity, water, food. Be sure to include vacations and other annual recurring items as well. Also make an estimate of potential out-of-the-ordinary expenses, such as roof repairs, etc.
Once you have a good idea of how much you spend in a year, offset those expenses with sources of income, such as pensions, social security, rental income and other reliable payments.
In order to keep up with rising costs, these sources should be adjusted for inflation because inflation reduces the purchasing power of your dollar over time. Just consider the price of stamps or gasoline now versus twenty years ago.
If after accounting for both expenses and income your number is at or above zero, congratulations! Your retirement is essentially paid for. If you come up with a negative number, that shortfall will need to come from savings. But how much do you need?
Assuming your money is invested in a diversified portfolio, studies have shown you can withdraw 4 to5 percent every year while maintaining the principal. What this means is that if you need another $40,000 per year to support your lifestyle, you will need a balance of about $1 million in investable assets on the day you retire. This is the price tag of your retirement.
Getting to that number can seem difficult, and even at times impossible. It will mean making tough decisions on saving, spending and investing. If you want the security that comes with knowing your path to retirement, hire a competent financial advisor to assist you in an unbiased manner in reaching your number.
DISCLOSURE: Any opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute WJ Interests’ judgment and are subject to change without notice. References to specific securities are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations.
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