Have you ever wondered what the most common retirement questions are? Would there be value in finding those questions and their related answers in one place? I trust the answer is yes because I’ve invested considerable time in attempting to do exactly that with today’s post. I hope you’ll find value in the result.
When I came across the 10 most common retirement questions in a recent article from ThinkAdvisor, a thought crossed my mind. After 5 years of blogging, would I be able to answer all of the most common retirement questions? What started as a simple challenge to myself led to hours of work for today’s post. I’ve also included extensive links to previous posts that address each of the most common retirement questions for those of you who’d like to “dig deeper”.
With that, here are the 10 most common retirement questions and my answers and articles for each.
Q1: Do I have enough to retire?
The most common retirement question is “Do I have enough to retire”, and I dedicated a 4-part “When Can I Retire” series on the topic when I was working out the answer to this question for my personal situation. Ironically, I just wrote a chapter in my upcoming book addressing common retirement questions related to money and I look forward to your feedback when the book comes out in April.
To avoid this post becoming a 3,000-word epistle, I’ll keep my answer simple (it’s not, so please click “related posts” for more detail). The simple answer is this:
A: If you’ve saved 25 – 33 times the annual amount you’ll need to withdrawal from your investments, you have enough.
Let’s say, for example, that you expect $30k from Social Security and plan on spending $80k per year. You’d need to pull $50k from your investments, so you’d need to have a range of $1,250,000 ($50k x 25) to $1,650,000 ($50k x 33) saved in order to retire. Quite a range, which I address in Question #3. Suffice it to say that the $1.25M assumes a 4% Safe Withdrawal Rate, while the $1.65M assumes a 3% Safe Withdrawal Rate. More detail to follow.
Q2: How much can we spend in retirement?
I’ve written extensively on this topic (see links below), so I’ll keep this one short. Using the inverse logic from Q1…
A: You can determine how much you can spend in retirement by simply multiplying your liquid retirement assets times 3% – 4% to develop a range of safe annual withdrawals you can make from your investments. Add to that any other income you expect, such as social security, a pension or any part-time income to determine how much you can safely spend.
Let’s say you have $1.0 Million in retirement assets. Simple math says you can draw $30-40k from your investments (3 – 4%, increasing each year with inflation), so your spending would be that amount plus any additional income you’ll receive in retirement.
Q3: Am I going to run out of money and die?
You’ll notice Q2 had a range of 3 – 4% of annual withdrawals from your assets. This range is based on extensive research on “Safe Withdrawal Rates” (SWR, or Sustainable Withdrawal Rates), a topic that far exceeds my one-sentence answer to these questions. The original Trinity Study determined you could withdrawal 4%, inflated for life, and not run out of money. More recent studies, like The Safe Withdrawal Rate Series from Early Retirement Now, conclude a figure closer to 3.25% is more prudent based on today’s markets.
A: Limit your spending to a Safe Withdrawal Rate (SWR) range of 3-4%, and be willing to cut back on spending during downturns, to ensure you don’t outlive your money.
There are other strategies, such as the “Spend Safely” strategy, which recommend a more flexible spending range based on actual market performance. This seems logical to me and I suspect our natural tendency will be to reduce discretionary spending during the next bear market.
Q4: I’m getting near retirement. What do we have to address in our portfolio?
Moving from the Accumulation Phase to the Withdrawal Phase is one of the biggest changes you’ll face in retirement, and it’s critical that you have a plan for your transition. In my case, I began setting up The Bucket System a year before I retired and have been pleased with how well it’s worked during my first 2 years of retirement.
A: Moving from Accumulation to Withdrawal is one of the biggest changes retirement brings. Begin positioning your portfolio a year before you retire, including a sufficient cash cushion to mitigate Sequence of Return risk.
Avoiding Sequence of Return risk is critical in your early years of retirement. Ensure you’ve built a sufficient cash cushion prior to retirement, and have a plan for how you’ll manage your spending during bear markets before the next one becomes a reality.
Q5: Will I have saved enough money to maintain my lifestyle in retirement?
As you prepare for retirement, it’s critical to ensure you have a firm grasp on the reality of your spending requirements. In our case, we tracked every penny we spent for a year before retirement and made adjustments for what we expected in retirement. Use my free spending tracker spreadsheet to do the same.
A: You must get serious about your spending needs in retirement. The retirement lifestyle you choose, and the cost of that lifestyle, will be critical in determining when you’re able to retire.
Once you’ve gotten a firm grasp on the spending required to live your desired lifestyle, refer to Q1 to determine when you’ll be able to retire at those spending levels.
Q6: How much do I need to save for retirement?
The most important thing you can do as you prepare for retirement is to think about the life you want to live after you retire. Get the cart in front of the horse on this one, and focus on your desired lifestyle first. Get serious about how much that lifestyle will cost, and do the math from there.
A: How much you need to save is determined by how much your retirement lifestyle is expected to cost. Focus on the desired lifestyle first, then back into the savings amount required.
Once you’ve established a realistic spending target to achieve your desired retirement lifestyle, refer to Q1 to determine how much you need to save before you can retire.
Q7: Am I on track?
If you’re 3 or more years from retirement, I’d suggest you spend the majority of your time working with retirement calculators to determine if you’re on track for your desired retirement date. You may also be interested in plotting your figues in the FIRE Prowess Gauge to see if you’re being aggressive enough with your savings rate.
A: Use a variety of retirement calculators to see if you’re on track, but move to a personalized spreadsheet when you’re within 2 years of retirement.
As the date draws nearer, I evolved to using a spreadsheet to estimate my actual Retirement Cash Flow Projection through Age 95 to ensure I was on track. Use my free Retirement Cash Flow spreadsheet to do the same.
Q8: What age can I retire?
My advice for Q8 would be similar to Q7. Get familiar with a variety of retirement calculators, and model the impact of various savings rates. The only way you’ll be able to retire earlier is to decrease your spending or increase your income, both of which will drive a higher savings rate. Most calculators will allow you to estimate your retirement age based on the variables you enter into the models.
A: The more you save, the sooner you can retire. Use a retirement calculator to run various scenarios, and adjust your savings as required to achieve your targeted retirement date.
Increasing your savings rate may be difficult, but I’d encourage you to make annual increases in line with your pay raises. If you get a 3% raise, increase your 401(k) contributions by 2%. You’ll never feel it, but your savings rate will increase and you’ll increase your odds of retiring earlier.
Q9: What else can I do to make sure I have enough to retire?
There are only a few factors within your control, and control them you must. Income, spending and savings are the levers you can adjust. If you’re worried about having enough to retire, you must focus on increasing income, reducing spending and driving your savings rate as high as possible.
A. The only levers you can control are income, spending and savings rate. To maximize your odds of having enough to retire, do everything possible to increase your savings rate.
To control spending in retirement, you should also consider downsizing to a lower-cost home, or get extreme and move to a low-cost country for a few years of retirement, like my friend Jim @ RouteToRetire is currently doing in Panama.
Q10: Am I at risk of outliving my money?
I was a bit surprised that this one came in at #10, as I suspect it’s one of the most common retirement questions most people ask. The key is to ensure you’ve established a process to keep your annual spending within your SWR level (see Q3). I’ve developed a simple annual process that takes about 2 hours a year.
A: Develop a process to ensure you stay within your SWR spending level (3-4%) once you’ve retired, and consider delaying Social Security until Age 70.
If you have longevity in your genes, you should also consider delaying Social Security, as the break-even age for deferring to Age 70 is typically in your mid-80’s. You may also want to consider purchasing a deferred annuity as a longevity hedge.
The 10 most common retirement questions, Answered! I trust you’ve found some value in the answers and, more importantly, the variety of articles linked to each question. If you feel this is worthy, I’d be honored if you’d consider sharing this post with 1-2 of your friends who may have any of these questions in their minds as they approach retirement. Let’s work together to Help People Achieve A Great Retirement (my byline).
Your Turn: Do you agree that these are the most common retirement questions, or are there other questions you have as you near retirement? Would you add any key elements to the answers provided? Let’s chat in the comments…
Originally posted at https://www.theretirementmanifesto.com/10-most-common-retirement-questions-answered/