Written by: Joseph Vander Linde, CLTC for The Couples Workshop in Fort Collins readers.
Hundreds of couples have sat in my office and shared their long-term goals and aspirations with me. They say things like, “We want to save a million dollars.” “She wants to retire at 65”. Or, “we could live comfortably on $50,000”, directly after establishing their last year’s household income is over six figures.
But are those their or your goals for that matter? This is where we need to get specific. The historic number of $1,000,000 was based on studies done by William Bengen in the early 90’s which showed a 4% systematic withdrawal rate which you can view here. You save the million dollars, draw the 4% or $40,000 a year and never touch the principal. Awesome! Those were the days— they were also the days when 10-year U.S. Treasuries were bearing between 6.19 to 10.19% interest between July 1985 – July 1995.
As of June 2020, that number has dropped to 0.70% and if planning your retirement by rules of thumb is your thing, some advisors recommend $3,000,000 as the new trendy one-million-dollar goal.
Maybe your grandparents told your parents that 65 was a good age to settle into their golden years based on the benefit age of Social Security implemented in 1935 by President Franklin D 3. Roosevelt. Back when the life expectancy of the average American was more than a decade shorter than today’s 78 years.
As with most things in life, do not ignore your “must haves” when it comes to creating income in retirement. Will expenses go down? Some, yes. At the same time, others will increase. Consider healthcare, shopping, travel, and taxes which are all likely to increase. Do not put your family in a corner by assuming a monthly or annual number without serious thought about your annual spending power, especially over time.
To avoid these outdated clichés, consider a few modern approaches to planning with confidence.
- If the environment we retire in is different, we need to address these opportunities and challenges with updated tools. After all, that is the beauty of life, it is always changing. Generating income from nest eggs varies by household size, dependents, health history, state, beliefs, values, and legacy goals. A combination of planning tools can help to reduce risk and anxiety and help maximize spending—with compromise and flexibility built in.
- Understand that the risks of accumulating and distribution in retirement depend on a number of factors, many of which are outside your control. Tax diversification, growth rates, and taxes have had significant impacts over these decades. Do not give up the control you do have by putting it off or “winging it”—apply a strategy to remove emotional mistakes such as exuberance or fear.
- Budgets do not need to be rigid, but they do need to be realistic. Typically, they include fixed and discretionary spending as categories. To reduce stress, you do not have to limit yourself to a line in the sand. For example, if you want to live on two-thirds of your usual household income, perhaps try it out for three months with vacation time. For others, a phased retirement plan is more comfortable, particularly when your career provides the opportunity to transition into part-time consulting. There is no hard-fast rule to when or how you must retire.
Some things work well and others… only in theory. Ultimately, your approach is sure to change as life throws its “chocolate chips” of surprises your way. Pension buy-outs, health troubles, or changing family dynamics have been hurdles we’ve addressed individually with evidence-based recommendations on timing and strategy to name a few. For those hoping to live to become the next centenarian in their family, we wish you the best.
1 Accessed June 16, 2020, https://retirementresearcher.com/the-4-rule-and-the-search-for-a-safe-withdrawal-rate/
2 Accessed June 12, 2020. https://finance.yahoo.com/quote/%5ETNX/history?period1=-252460800&period2=1591920000&interval=1mo&filter=history&frequency=1mo
3 Accessed June 12, 2020 https://www.marketwatch.com/story/retirement-dreams-3-million-is-the-new-1-million-heres-how-to-get-there-2020-01-27
4 Accessed June 12, 2020 https://www.macrotrends.net/countries/USA/united-states/life-expectancy
5 Accessed June 12, 2020 https://www.investopedia.com/articles/personal-finance/060514/4-big-reasons-your-expenses-could-rise-retirement.asp
Contributed by: Joseph Vander Linde CLTC, Financial Services Professional
To Contact Joseph:
New York Life Insurance Company
3003 East Harmony Road
Suite 110
Fort Collins, Colorado 80528
Agent licensed to sell insurance through New York Life Insurance Company and may be licensed with various other independent unaffiliated insurance companies. Additionally, I am a Registered Representative of and offer securities products & services through NYLIFE Securities LLC, (Member FINRA/SIPC), A Licensed Insurance Agency, NYLIFE Securities LLC is a New York Life Co.
Neither New York Life Insurance Company, nor its agents, provide tax, legal, or accounting advice. Please consult your tax, legal, or accounting professionals before making any decisions.
Thanks to Joseph Vander Linde for providing this content to our Couples Workshop readers!
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