How much is enough for retirement? Four Keys to Successfully Sticking to a Retirement Plan

By Jonathan DeYoe

The financial media is often hyper-focused on current events and developments, trying to “time” the market with investment picks or allocations. It’s a narrow way of thinking. Most investors should really focus on a long-term plan to achieve the goal of a comfortable retirement.

Jonathan DeYoe, CPWA®, Senior Vice President at EP Wealth Advisors is a Lutheran seminarian, turned Buddhist scholar, financial advisor and educator. He is the bestselling author of Mindful Money: Simple Practices to Achieve Your Financial Goals and Increase Your Happiness Dividend. He writes and speaks about the intersection of money and happiness at Mindful Money - a financial education company. Jonathan is based at the EP Wealth Berkley office, where he helps clients manage their finances and investments, with the goal of long-term happiness and well-being. — Jonathan DeYoe

Many people don’t start thinking about retirement and the costs associated with it until they are 40 or 50 years old. The good news is that it’s not too late to build a successful retirement. However, the sooner you start gaining knowledge and saving, the easier the process will be. Fortunately, the markets are historically positive in the long term and preparing for retirement ideally involves long-term investments.

Do you feel uncertain? A look at historical market performance can give you peace of mind as you plan your future.

Key Steps to Success

Determining whether you can comfortably retire – and stay comfortably retired – comes down to four key steps:

Estimate of your need. Until you do the math, it’s hard to accurately estimate how much money will be needed to feel comfortable in retirement. When estimating your needs, look at potential sources of income and subtract expenses. For example, if you currently spend $100,000 per year and expect an annual income stream of $25,000 in Social Security retirement, your estimated need would be $75,000/year if you want to maintain this style of living. life. However, Social Security expectations become less clear the further you get from retirement, due to uncertainty about your annual earnings and program contributions by then. This projected annual need of $75,000 in retirement will also be influenced by inflation, to the point that retiring in 30 years would likely push the adjusted figure up to $150,000 per year.
Capitalize on this need. After having calculated the need, how to capitalize to meet it? This involves determining how your asset pool can generate adequate income that will also accommodate the rising cost of living over time. Some useful guidelines are 4% rule and 25x rule. The 4% rule states that you can withdraw 4% of your savings each year in retirement and reasonably expect those savings to last 30 years. To find the value of an adequate retirement nest egg that will allow you to withdraw 4% each year, multiply your expected annual withdrawal by 25. In the example above, multiplying $75,000 by 25 equals approximately $1.88 million dollars, so you would want at least that amount saved when you retire.
Definition of your savings goal. To set a savings goal, look at your current assets and see where you are compared to the funded need. Think about life changes that may occur before retirement, such as selling a business, receiving an inheritance, or downsizing your residence. Such a large capital change could significantly increase your retirement balance. Completing this assessment will help you determine if you are currently on track to capitalize on your retirement needs or if you need to increase your savings.
Creation of the withdrawal plan. Unfortunately, many people don’t execute a retirement plan properly because they don’t save enough. The cost of living has been rising for decades and will likely continue to do so, making it an essential factor when developing your withdrawal plan. But too often, people don’t take this consideration into account appropriately or don’t handle actual withdrawals well. While the previously mentioned 4% rule is a good starting point, the amount withdrawn each year must also take into account inflation. Creating and following a withdrawal plan is crucial due to the need to place limits on the amount of additional income withdrawn in inflationary environments – and the fact that withdrawing money during bear markets can make difficult to recover a wallet.

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Legislative and policy changes

As times change, so do the policies and legislation surrounding financial institutions and markets. So how are investors positioning themselves to succeed regardless of the changes that may occur? The short answer: if the planning is done right, they shouldn’t have to worry.

Investing is more effective as a long-term strategy. If you invest with a short-term approach, new policies and legislation could have a huge impact on your portfolio and your retirement. But these changes should have minimal impact if you’re investing for the long term with a diversified portfolio that allocates assets to various sectors and companies.

The reasoning: regardless of the economic situation, the money will continue to flow, and consumers and businesses will continue to spend. The difference is How? ‘Or’ What They spend. At the height of the pandemic, for example, many consumers spent their money on goods and services delivered to their homes rather than going out to eat, buying gym memberships or attending concerts and shows. sport events.

Building the Belief

The best way to prepare for a comfortable retirement is to start planning early in life. By starting in your 20s or 30s and following the four keys outlined above, you’ll likely feel much more prepared and less stressed as you approach retirement.

In addition to saving when you still have decades to go before retirement, I recommend that you consult your financial advisor each year to evaluate and possibly adapt your plan. As you approach retirement, increasing these checks to twice a year will help reduce uncertainty and ensure you’re on the right track. A consistent review process with your advisor should help strengthen your belief over time. If you get answers to questions from experts when you’re 40, for example, you probably won’t need to ask those same questions again when you’re 50 or 60.

Confidence in the markets is essential to your peace of mind when preparing for your retirement. History clearly shows two fundamental trends: 1) the goods and services we buy will become more expensive over time, which is why equity exposure is so important, and 2) the further we zoom in on market returns, the less volatile they become – emphasizing the importance of patience and long-term thinking.

It’s nearly impossible to know which direction the S&P 500 might turn tomorrow or what impact new government policy might have on a particular stock. This also doesn’t need to be a concern as market performance is much more predictable over the long term.

The priority is to learn the basics of the markets, like understanding why diversification is crucial and how to rebalance. From there, everything you do should help you believe that markets actually work, because they do. Establish your long-term plan, start saving early, diversify your investments, consult your advisor regularly and be assured that the market will lead you to a comfortable retirement.

About the Author: Jonathan DeYoe

Jonathan DeYoe, CPWA®, Senior Vice President at EP Wealth Advisors is a Lutheran seminarian, turned Buddhist scholar, financial advisor and educator. He is the bestselling author of Mindful Money: Simple Practices to Achieve Your Financial Goals and Increase Your Happiness Dividend. He writes and speaks about the intersection of money and happiness at Conscious Money – a financial education company. Jonathan is based at the EP Wealth Berkley office, where he helps clients manage their finances and investments, with the goal of long-term happiness and well-being.