How to Retire on $60,000 a Year
If you're a middle income family, you might be wondering how much money you're going to need to retire. Let's take a look at a 66-year-old couple that's been earning $60,000 a year and see what the numbers tell us.
Social Security
If you've been earning about $60,000 a year and want to retire at your full retirement age of 66, your current Social Security benefit would be about $1,500 a month, or $18,000 a year. Now if you're married, your spouse will basically collect at least half of this amount ($9,000), even if your spouse never worked. That means your estimated combined Social Security benefit at age 66 today would be about $27,000.
If you're getting $27,000 in Social Security benefits and want to retire on $60,000, you need to somehow make up the other $33,000. The only way to do that is to live off the returns on your retirement savings (unless you happen to have a pension, which most people don't).
So at age 66, how much money would you need to have saved to produce $33,000 a year in distributions and not run a big risk of depleting your savings?
Well, there's no precise answer to this question because financial market returns are so volatile. But from studying history, we can get a reasonable sense of what it will take.
A good estimate is that a portfolio can support inflation-adjusted distributions of between 4% and 5% per year, depending on market conditions. So if you're unlucky and retire during a bear market, you might be stuck at 4%. It you're a little more fortunate and financial returns are positive, then you could probably do 5%.
• The reality is that over your retirement years, you'll have good and bad market cycles. So sometimes you'll need to drop your distribution to 4% to get through a rough market, and sometimes you can bump it to 5% in better times.
That means to produce $33,000 of inflation-adjusted distributions, you would need somewhere between $660,000 and $825,000 in retirement savings.
• A 5% distribution on $660,000 gets you $33,000, and a 4% distribution on $825,000 gets you $33,000.
Now that might seem like a lot of money, but it's about right. And the main reason you need so much is because of inflation. If inflation runs at 3% for the next 25 years, your initial distribution would need to grow from $33,000 to about $66,000. Well, if you're taking out $66,000 a year, you can see that even a $660,000 portfolio probably won't last too long.
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Friday, April 22, 2011
How to Retire on $60,000 a Year
3:18 AM
Tribune
