Retirement savings require regular monitoring to make sure they aren’t duly affected by economic conditions such as the current recession. What you put into place several years ago may not be sufficient to reach your goals by the time you retire.
Real estate fluctuations also need to be assessed on a consistent basis. For example, right now. real estate values are at an all time low and people who were depending on their home as a source of funds to bolster their retirement savings plans, are in a tough situation at the moment especially if retirement is just around the corner.
Retirement Investing
There are two aims in retirement; to continue growing your savings and controlling your risk and spending. Finding a balance between the two takes a little doing and for those who need some help, then this retirement calculator will be able to help you determine how much you will be able to spend each month.
Investment risk is something you might have to consider. We’re not saying gambling type risk but calculated and manageable risk. One of the fears is suffering losses when the stock market crashes and in the past 25 years, we’ve seen this happen several times. Many lost huge chunks of their future income when this happened.
Spreading the load is one way to avoid losing large slices of your future retirement income. Reducing your investments in stocks and increasing bond investments is a simple way of buffering against this type of risk loss. The downside is that the rate of returns on bonds is not as high thus creating the risk that your retirement savings income will not be as large as you estimated thus reducing your spending capacity.
The fix…build up your bond portfolio to a level that will balance the risk of stock losses but at the same time, increase your stock portfolio to generate the savings growth your after. How you arrive at the right balance will require sitting down with a financial advisor who can help you arrive at the right recipe. When you retire, investing in about 40-50% stocks and the remainder in bonds will be a good starting point.
But run this past your advisor. As you progress through retirement, gradually reduce the stock investment percentage by 10-15% each ten years.
Retirement Spending
One of the problems when you retire is balancing your spending against your investment returns. Spend too much and you risk running out of money too soon. Remember, people are living much longer these days in fact, you could reasonably expect to live for at least 30 years from the day you retire.
The general rule of thumb is you spend at least 4% of your retirement saving account total in your first year so a $1 million dollar investment total would mean you could withdraw $40,000. Each year after, this withdraw amount would increase with inflation and by using this benchmark, your savings could last you up to 30 years.
But be careful you don’t spend too little. The purpose to save for retirement is to enjoy it and by spending too little by being over-conservative could mean you have too much money left after the 30 years. Okay, that’s not such a bad thing but what if the economy is booming and your returns are excellent.
You’ll end up with a large amount of money; money you could have spent on yourself and really enjoyed your golden years.