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Fearless Advisor, retiring, retirement, investing, financial advisor, Josh Duncan, F5 Financial, Venice, McDonough

What Is the Key to Retiring Successfully?

By: Josh Duncan

Today I cover the 3 key principles for retiring successfully. Tune in to find how to apply this wisdom to your future retirement!

(Video is under 5 minutes. The full transcript is below.)

Full Transcript of video

Hey friends, the Fearless Advisor here. Today I am going to discuss the key to retiring successfully.

Preparing for Retirement – 3 Key Principles

Now, if you are watching this video in hopes of a silver-bullet solution to retirement, that is not what you will find here. Why? Because there are no silver bullet solutions to retirement. But there are some key principles that will help you prepare for the retirement you desire.

Principle #1: Determine how much your lifestyle will cost.

First, you must know what it costs to live the lifestyle you want in retirement. The easiest way to figure this out is to start with the cost of your lifestyle today. This is the least favorite exercise of most people I work with. However, without knowing how much money you will need to live in retirement can make for very stressful golden years.

Use this budgeting workbook and future-value calculator.

For this exercise, consider your expenses for groceries, home upkeep, utilities, property taxes, medical, travel, and more. We have included a budgeting workbook in this post, which you can use to map out your expenses. My encouragement to you is that this does not have to be accurate to the penny. If you know the annual amount you spent for a category, simply divide it by twelve and that will suffice.

You can now use a future-value calculator online to see what your current expenses will be the year you begin your retirement. Write this number down to use in a few moments.

Remember to consider unplanned and uncontrollable expenses.

One last thought on expenses. I’m of the opinion that unplanned and uncontrollable expenses are one of the silent killers of a retirement. The reason is that if your investments cannot support your spending for the remainder of your life, you are likely to run out of money.

Principle #2: Determine the sources of your retirement income.

Second, you must determine where your income will come from in retirement. Many people will receive some benefit from Social Security. Others may receive a pension. Most future retirees will be living off their investment portfolio, such as their 401(k)s and IRAs.

If your pension and Social Security benefits are enough to sustain your lifestyle, then retirement planning should be straightforward. However, the other silent killer of a successful retirement is inflation. Therefore, living on a fixed income for the remainder of your life could be challenging.

Principle #3: Estimate how much you will need in your investment portfolio to sustain your lifestyle.

Finally, if you know your expenses and the monthly income you will have from Social Security, pensions, rental income, etc., we can estimate how much you need in your investment portfolio to sustain your lifestyle.

How do I calculate what size investment portfolio I will need?

Here is how: Take the annual amount of your expenses the year you begin retirement (the number I asked you to write down) and subtract your annual amount of fixed income, such as Social Security and pensions. This is the amount you will need from your portfolio before taxes.

Now, you have to add a percentage for taxes. For example, if 25% will cover your taxes, you’ll multiply the pre-tax amount you will need from your portfolio by 1.25. This formula [of 1 X (your tax rate)] will give you the total estimated amount you will need to withdraw from your portfolio the first year of retirement.

The final step is to divide the total annual amount you need from your portfolio in the first year of retirement by the rate or percentage you plan to withdraw from your investments. Many industry professionals argue about what the withdrawal rate should be. Consider looking at 3% and 4% for a range.

If you need to withdraw $60,000 from your portfolio in the first year of retirement and wish your withdrawal rate to be 3%, divide $60,000 by 0.03. The answer is $2,000,000. So, you would consider building a plan to save $2,000,000 prior to retirement.

Taking the time to plan your future will pay dividends in your golden years.

In summary, to plan for a successful retirement you need to know your expenses, where your income will come from, and the amount you will need to have saved to complement your fixed income. Taking the time to plan your future will pay dividends in your golden years.

If you would like to know how well you are aligned to retire successfully, reach out to us here at F5 Financial. Thanks for joining us!

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