Tip Two

Archive Tip #2:

If you are anxious about not being able to afford to retire:

1. Draw up your current financial picture using my summary form and instructions on this website.

2. Look at the amount(s) you have in your retirement funds. Assume that you can use 8% of the investment return from these funds to live on in retirement, and multiply the 8% by the total of all your retirement funds. If you have other investment funds, multiply the 8% by the total of these funds. (NOTE: My 8% assumption is based on your making a total average annual return of 10% or more on your funds.)

  • EXAMPLE: If you have $100,000 total in retirement funds (eg. Independent Retirement Acounts, 401k’s, 403k’s Pension Funds, Profit Sharing Funds, etc.), you multiply that amount by the 8% investment return, ($100,000 X 8% = $8,000). If you have $50,000 in other invested funds, you would have $4,000 ($50,000 X 8% = $4,000) in additional income to add to the $8,000.

3. Divide the total amount of income by 12 to get the average monthly income from these funds.

  • EXAMPLE: If you have $8,000 retirement income and $4,000 income from other invested funds, you would have $12,000 in total annual income ($8,000 + $4,000 = $12,000) and $1,000 in average monthly income ($12,000/12 = $1,000).

4. Calculate the amount of other retirement income you would receive from social security, part-time work, etc.

  • EXAMPLE: You might have $900 in monthly income from social security (NOTE: You can call your local social security office and find out the amount).

5. Total your average monthly retirement income from all sources.

  • EXAMPLE: Your total monthly income in the two illustrations above is $1,900 ($1,000 retirement investment income + $900 social security).

6. Replace your current monthly income on your Single Page Financial Summary Form with your total monthly income in retirement.

  • EXAMPLE: Assuming on your Summary your current monthly income is $2,500, you would replace this with $1,900.

7. Compare your retirement monthly income to your current monthly expenses to see if your retirement income is enough to maintain your current lifestyle.

  • EXAMPLE: Assuming your monthly expenses are $1,900 (including taxes) or less, you can feel secure that you can afford to retire. If your monthly expenses are more than $1,900, you need to look at the possibility of reducing your expenses in retirement or getting a part-time job to make up the difference.

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