It’s pretty safe to say we all have one goal in common, and that is to eventually retire. Today, it’s harder than ever to save for your retirement. Americans are being squeezed from so many different directions. Income is down, inflation is up, the savings rate is down. How are we going to be able to save as well as live and survive to get to retirement?
One day you’re going to want to turn your income off, stop working and start taking distributions from your accumulated funds. We call this Position A. Having enough money saved up and accumulated to support your current standard of living, adjusted for inflation, so that you don’t run out of money before you run out of life.
So how do you know if you’re on track to meet this goal? How do you know if what you’re saving in your company 401k plan, 403b plan, IRA, or other investments is actually going to get you to your Position A.
Well, there are four questions that everyone needs answered in order to know whether or not you’re on track. First and foremost, what rate of return do you need on your savings and investments to get you to Position A? Second, how long do you need to work in order for you to get to Position A? Third, how much more do you need to save in order to get to Position A? And number four, how much will you have to reduce your current lifestyle in retirement in order to not outlive your money?
Knowing the answers to these four questions is vital to make sure you’re on track to meet your Position A. Another thing to note about these four questions is that the answers are going to be noted in future dollars, meaning adjusted for inflation. Currently, inflation’s between 6 and 7%, so the government says, and we want to make sure that you have enough so that your dollars could buy the same amount in the future as they’re buying today.
The point is, this is not a simple calculation.
The fact of the matter is we’re trying to hit a moving target and in essence, we’re trying to plan for certainty during uncertain times. However, as with any goal, in order to know how to get there, you need to first know where you’re going, and then you can make a plan on how to achieve that goal of getting to your Position A and retiring so that you’re not going to run out of money before you run out of life.
If you’d like to know the answers to the four questions as it relates to your specific financial position, check out our website at Tier1Capital.com and hop on our calendar for a free strategy session. We’ll be able to answer them in about 15 minutes.
And remember, it’s not how much money you make. It’s how much money you keep that really matters.