I get a lot of questions about how to plan for retirement. Most of the questions are rhetorical, simply creating another question. Let’s go through a few, so that you can have a basis for understanding the problems inherent in the concept of retirement planning.
When should I file for Social Security?
This begs the follow up question of, “How long are you going to live?” If we knew that answer, then the first would be a simple matter of mathematics.
35% of men and 40% of women claim social security when they are first eligible at age 62. Since we don’t know how long we’ll live, the conservative answer is to try to hold out until your full retirement age, which is 67 for people born after 1960.
How much money will I need in order to retire comfortably?
This begs two questions. First, what is your intended Social Security benefit? Second, how much will you need to live on annually?
Once you have those two numbers, it’s more simple math. Let’s go through an example.
We have a couple in their mid forties. They live comfortably on $150K annually and expect a combined social security benefit at the full retirement age of $40,000 per year.
The hard part is accounting for inflation. I took the average amount of inflation for the past 22 years to get the couple from age 45 to 67 and came up with a cumulative inflation rate of 63.9%.
This means that the extra $110,000 they need will actually become $180,290 annually in 22 years. If you assume an average rate of return on your assets of 5%, that means that this couple will need roughly $3.6M to retire comfortably.
For many, that’s a huge number, but there is much to consider. What will your business be worth? What about your real estate? Do you have other sources of income for retirement other than Social Security? There’s a lot to consider when coming to that number.
How should I withdraw money from my retirement accounts?
This begs the question of, “How are they taxed?” Obviously we should take out the tax free money first so that more of your money can continue working and growing for you. We also need to look at how the state you live in treats your retirement income.
Many don’t realize that Illinois is one of the best states for retirement because your retirement income isn’t taxed. If you have further questions about your retirement, please contact us today.
Let me leave you with this.
This past weekend, we’ve been inundated with everything from ex-presidents making speeches at sacred sites to widows and mothers placing flowers on the graves of their loved ones from September 11th.
I’m not going to ask you where you were that morning. I’m not going to ask you if you lost a loved one. I’m not even going to ask you if you’ve toured Ground Zero.
I’m going to ask you who you were as a person on September 10th of 2001.
About a year after those cowardly attacks, I went on a vacation to Spain and Portugal with my then, new wife Julie. We had been married four years and had a two-year-old daughter at home being watched by my Mother.
The palaces, aqueducts, cathedrals, and flamenco dancing have all run together except for one evening when we were out having dinner. By chance, we ran into an older couple from London and began talking about the attack.
The husband looked at me and said, “In time, you’ll begin to understand what this actually means.”
I responded by asking, “What do you mean?”
He said, “America just grew up.”
At the time, what he said angered me. It must be the American in me. After the Revolutionary War, the First World War, and WWII, I can’t stand being lectured by the British, but in time I realized that he was absolutely correct.
On that horrific and surreal morning, while watching the Today Show with my one-year-old daughter in my arms, America grew up.
Our cities have never been bombed and our women have never been raped. Except for a small incursion during WWII in the Aleutian Islands, our homeland has never been occupied.
For in that moment, watching the second tower fall, we all finally knew the true definition of terror.
I’m not going to get into the 20 year war that resulted, the thousands of lives lost, and the all pervading disunity which is now a hallmark of our great nation. I will simply ask you to remember who you were as a person on September 10th of 2001.
Take a moment. Soak that in. Youth is a beautiful thing. I pray that I brought a smile to your face.
We’re all going to get through this. Let’s get through it together.
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