More than Money with Gene Dickison
“Real Life Questions – Real World Answers”
“My husband and I are about four years away from retirement – if you think we can retire.
Our home is worth about $200,000 and is paid off. The only debt we owe is a car loan at zero interest. Our kids are grown and doing well. We have two grandchildren.
My husband has about $410,000 in his 401(k) and I have about $95,000 in mine. We contribute to these and get a company match. We each have IRAs with just over $30,000, but we’re not adding anything to these accounts. We have $19,000 in the bank.
My husband’s social security will be about $2,300 a month and mine is about $1,800. Neither of us will receive a pension.”
Do you think we can retire in 4 years or should we plan on working longer?
We both enjoy your radio show and your sense of humor. We also appreciate your willingness to talk about God and pray for people. We look forward to our Saturday morning breakfasts with you. Thank you.
You are very kind. Except for the breakfast part (I wish I could figure out how to eat a stack of pancakes and host the show at the same time. I keep getting maple syrup on the microphone) I look forward to my Saturdays with you as well. God has certainly blessed us all.
Thank you for the detail of your question. However, there is one detail missing – what will you be spending each month in retirement? Answering this one question will make answering any additional questions quite easy. Not having that information means my answer will need to be a bit more general than I would prefer.
In very simple terms, if your monthly expense level is at or below $4,100 (your social security benefits) you can retire today. Don’t wait four years. Don’t pass Go. Don’t collect $200. Go immediately to retirement. Of course, it’s easy to see why. If your social security meets your needs your future financial security is very nearly assured.
If your monthly required income is at or below $5,900 each month your retirement in four years is also quite assured. Based on your current assets values ($585,000 +/-) and a four percent (4%) annual withdrawal rate you should see about $1,800 per month generated from your investment portfolio. Adding this to your social security benefits provides you with $5,900 or so each month.
If your monthly required is about $5,900 the challenge is a bit more interesting. You will need to measure your actual monthly needs against what you will receive from social security, the $1,800 or so you might expect from your current investments, and what you might generate from the assets you manage to save over the next four years.
You will be adding dollars (perhaps significant dollars - if you maximize both your 401(k) contributions over the next four years you could see your balances grow by more than $200,000) to your investment accounts. Such additional capital might add as much as $700 each month to your retirement income – taking you to about $6,600 per month.
If that income level doesn’t meet your needs it’s time for Plan B!
Check back with us for details of Plan B – if necessary.
“My husband is about ten years away from retirement. When we met with our advisor a couple of weeks ago he told us we have about 70% of our retirement funds in the stock market. He also said we are doing quite well.
All my husband heard was the 70% in the stock market part. He is worried we’re going to go through another 2008 again and lose half our money.
Our advisor explained about the thing she can do if that happens again, but my husband didn’t hear it and I guess I’m not explaining it right – he’s not buying it from me.
Can you talk him in off the ledge?”
Maybe . . . I hope so . . .
Using my most professionally rational argument, the fact that your husband has ten years until retirement (anything above five would have made me comfortable) provides him with ample time to weather the inevitable ups and downs of the market.
Sadly, your husband’s concerns are not rational. They are most definitely (and definitely understandable) emotional and very human. 2008 stunk. Pure and simple. And it went on for a long time – nearly fifteen months. And the rebound took nearly a year. Two years top to bottom to even. Nasty. In some ways I guess I’m impressed your husband has allowed your advisor to get you to 70% in the market. Let’s give him credit.
Personally, I think your advisor might need to come at this in a slightly different way. She may need to spend some significant time with you and your husband getting very clear about what retirement looks like for the two of you. Specifically, what size portfolio will you require to generate the income you will need in retirement? Start with your desired retirement income and subtract out the benefits you expect from social security and any pensions you might receive. The gap between those two numbers is the income you need to receive from your investment portfolio. Using a reasonable assumption of withdrawal rate (4% is often used, but you might want to use a lower number to be more conservative) you can calculate the size of the investment portfolio you will need when you retire.
Once you know the target portfolio you require and compare that to the dollars you’ve already accumulated and factor in the savings you expect to add over the next ten years, we can calculate (quite precisely) the rate of return you need to reach your goal.
Perhaps, coincidentally, you find you require 70% of your investments in the stock market to reach you goal. That may not make your husband more comfortable, but at least he will know you are taking a risk because you need to. Because . . . you may find you can reach your goal taking far less risk. Less risk in this case means far less of your investments need to be in the equity (stock) market to reach your goals. Wouldn’t that be cool? You might be able to reduce your risk exposure and increase your husband’s peace of mind at the same time.
A professional advisor can certainly perform this evaluation in short order and with minimum fuss. However, your husband may need a bit more assurance. Our More than Money advisors have a retirement income projection tool that is very useful for putting organization and order to what is an inherently messy process. Lots of moving parts. Lots of what ifs. Sometimes using a tool that has a bit less emotion attached to it can be useful.
Finally, there is no honor to an investment plan that is so ‘correct’ that it can’t be flexible. I would far rather introduce a client to risk reduction tools (annuities are one example) and strategies (broad diversification and bonds are two examples) than see the same client be scared completely off their retirement track.
If you feel your husband would benefit from the application of our retirement income projection tool, please simply contact our office to schedule that time. We’re happy to help.
And remember, in the words of the amazing Yogi Berra, ‘Predicting is really hard – especially about the future!’
More than Money Radio
Have Breakfast with Gene every Saturday Morning at 8:06 as
More than Money with Gene Dickison airs on AM790 WAEB.
Two Full Hours – 8:06 through 10:00 AM.
Words are Powerful Tools for American Freedom
Joel Osteen is a preacher. His preaching reaches an estimated 20,000,000 people each month. Some have described his fundamental message as focusing on the goodness of God and the wonder of an obedient life. I’ve read a number of Joel’s books and found much to like in each. About a year ago I discovered his radio channel that broadcasts his sermons around the clock. I’ve found much to like with what I hear. Our world presents significant challenges to us all. Some ask, ‘How do we change these things?’ This is what Joel Osteen has said that may give us a clue to seeing change:
“Act like you are blessed. Talk like you are blessed. Walk like you are blessed. Put actions behind your faith and one day you will see it become a reality.”
So simple. Not so easy. But . . . a very clear path to follow for those of us in faith. Start with knowing you are blessed. Then add walking, talking, and acting like you are blessed. Finally take action and have faith your good works will produce excellent results in perfect alignment with the love our God.
Please allow us to serve you and those you love.
P.S. As in many churches, there is a time during our services when we ‘Pass the Peace’. We wish God’s blessings and peace on as many people as we can touch. To be honest, it sometimes takes quite a long time to get to as many people as I can – it is quite wonderful.
When I greet one gentleman (one of my newest and dearest friends in faith) with, ‘God bless you,’ he invariably answers, ‘Oh, he has!’
I pray you feel and appreciate that you are blessed by God.