VOL. 126 | NO. 234 | Thursday, December 1, 2011
Rays of Wisdom
Dana and Ray Brandon
Can You Afford to Retire?
Ray’s Take: Baby Boomers are on the brink of retirement. Or are they? The recent market downturn changed retirement plans for many people as investments shrank and homes lost their value.
Can you afford to retire? The rule of thumb is you’ll still need 80 percent of your working income to retire. My experience is that it’s more like 120 percent, at least for the first 10 to 15 years of retirement. Think about it. Time spent working is time away from spending. More free time equals more spending.
To see if your financial situation matches your needs, add up the income you will have from any pensions, Social Security, and other non-savings related sources. Then total up everything you’ve saved along with all your investments.
Once you determine your retirement expenses, retirement income and savings, you can calculate how long your savings should last. Online retirement calculators might help with this. You’ll want your savings to last until you are at least 95 – or even older to be safe.
Keep in mind that future returns on your savings along with inflation will impact your situation. We have reduced our average return expectations for the coming decade. Plus, while average inflation over the last 10 or 15 years has been subdued, there are potential scenarios going forward where that could really change.
Of course, retirement is not an all-or-nothing proposition. You could work part-time for years to supplement your income and extend your savings. Working longer seems to be in the cards for a good many of us, so long as our employers are okay with it.
If you do the math and see dreams of retirement fading away, don’t despair. You can still make changes in your savings and spending habits that could change your future. However, don’t put it off. The future has a way of coming whether we’re ready or not.
Dana’s Take: Retiring isn’t all about money. It’s also about how you feel about the idea. Leaving a job also means leaving the social network that probably dominated your life. If you don’t have other social outlets in place, losing that could make you feel isolated. Your job also provided structure to your life – a structure you’ll need to rethink with all that extra time on your hands.
It’s a lot to think about before making the leap into retirement. On the other hand, retirement is also full of exciting opportunities.
Think about retirement as a different kind of graduation: You’re moving on to something new of your choice. Just like a college graduate, you can try different approaches to the next phase of our life. You might turn a passion into a profitable enterprise, or opt to work part-time, or find fulfillment in volunteer work.
The options are yours. It’s up to you to make the most of them.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at email@example.com.