I’m 49 years old and have had a steady job as a government contractor for over 15 years. I plan to retire at about age 65. Between his 401(k), IRA, and personal savings accounts, he has $500,000 in savings. I rent, have no debt, and my family consists of three people, including my girlfriend. I’m worried about my source of income in retirement. I don’t have a pension, but I live below my means. I have read about pensions, but they are too expensive. What other options do you have for retirement income?
– Victor
First of all, Victor, it’s great that you’re thinking this through so much ahead of time. It’s also impressive that you’ve already accumulated quite a bit of savings.
In fact, you seem to be doing very well to me. There are a lot of details about your situation that I don’t know, but my guess is that you don’t need to do anything too complicated to make sure you have enough income. retirement. (Need more help with your retirement planning? Consider consulting a financial advisor.)
Predicting income from retirement savings
It looks like your savings alone will cover most of your retirement income needs.
according to 4% rule, you can safely withdraw 4% of your retirement portfolio each year, adjusting upward for inflation, with little risk of running out of money. In fact, you almost always end up with more money than you started with.
The question then becomes, how much money do you plan to have by the age of 65, and how much annual income will you receive from it? To crunch the numbers, I made some assumptions about your situation.
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Annual income of $50,000
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5% individual 401(k) contribution ($2,500 per year or $208.33 per month)
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3% employer match ($1,500 per year or $125 per month)
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Annual return on investment 6%
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Annual inflation rate 2.1%1
Starting with a balance of $500,000, these numbers predict that you will have $1,409,757 in retirement savings by the time you reach age 65. Using the 4% rule, his annual salary equates to $56,390.
But that number doesn’t take into account inflation, so it is difficult to compare with current salaries. If you instead use an inflation-adjusted return of 3.82%, your balance would be $1,008,439. This equates to an annual salary of $40,337 for him in today’s dollars.
This $40,337 is pretty close to your expected annual salary of $50,000. Considering taxes and living below your means, you might even be able to replace that salary entirely. But that’s not the only source of income during retirement. (If you need help predicting your retirement income, Consider matching with a financial advisor. )
Don’t forget social security
There are many doomsday prophecies in the world. social security is still alive and well and you can count on it to provide you with a stable and predictable income.
use this calculator This is provided by the Social Security Administration, and again assuming an annual income of $50,000, you can expect to receive benefits of approximately $1,844 per month (in today’s dollars) at age 67, which is an annual This equates to an income of $22,128.
Add in $40,337 from your retirement savings, and your total annual income is $62,465, enough to replace your current salary. (Not sure when is the right time to claim Social Security? financial advisor can help. )
What if your income is high?
Of course, I’m making big assumptions by estimating your annual income at $50,000. And the truth is, the more you earn now, the harder it can be to top up in retirement.
For example, assuming your current salary is $100,000 and holding all other variables the same, you would get the following results (all expressed in today’s dollars):
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Annual income from retirement savings $43,859
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Social Security benefits of $35,040 per year
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Total annual retirement income of $78,899
Although this is a larger amount than in the first example, it actually adds up to a smaller percentage of your pre-retirement income. However, even after taking into account taxes and actual expenses, it may still be enough to meet your spending needs.
However, if you’re concerned, your best bet is to increase your contributions to your retirement account. For example, if the income is $100,000 and the employee’s contributions increase to 15%, his expected annual income from the retirement account will increase to $52,664.05. This is an additional $8,805 per year and can make a big difference. (Need more help with your retirement planning? This tool helps match you with an advisor It may meet your needs. )
next step
Most of the concrete things you can do to earn an income are, for example: pension, investment real estate or high dividend stocks – There are costs and other downsides that can cause more harm than good. While they may make sense for your current or future situation, they are certainly not a panacea.
The way I see it, you’re on the right track and don’t need to do anything special other than increase your retirement savings.
Tips for finding a financial advisor
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find financial advisor It doesn’t have to be difficult. SmartAsset Free Tools , we match you with up to three vetted financial advisors serving your area. You can also have a free introductory call with an advisor to decide which advisor you feel is a good fit for you. Are you ready to find an advisor to help you reach your financial goals? Get started now.
110-year expected inflation rate, Cleveland Fed
Matt Becker, CFP®, is a SmartAsset Financial Planning columnist and answers readers’ questions about personal finance and taxes. Have a question you’d like answered? Email AskAnAdvisor@smartasset.com. Your question may be answered in a future column.
Matt is not a participant in the SmartAdvisor Match platform and receives compensation for this article.
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post Ask an Advisor: I’m 49 years old and have $500,000 in savings, but I’m “concerned” that my retirement and pension benefits are “too expensive.” What are my options? It first appeared SmartRead with SmartAsset.
