Outliving Your Money
By Max Valavanis, CFP®
“Do I have enough money to retire?” is one of the most often asked questions I hear. Interestingly, this question is not easy to answer. There are too many variables to consider and no advisor has a crystal ball. Retiring too early does have its measure of risk, but retiring too late can also prove to be a hair-brain idea – especially if you don’t love your work. What is safer – retiring too late or too early?
These questions are better answered with more questions. Do you love your work? Is your career really a job or is it a passion? How is your health? Is your spouse already retired? What would you do to keep busy if you did hang it up? Retiring is a process, not an event. Most workers take over a year or more to make the decision and get all their ducks in a row. Your best scenario is to follow your heart, take baby steps, prepare, and seek professional advice.
We all need money to keep the lights on and our stomachs full. Retiring too early reverses the role of your savings and investment accounts – they no longer are custom-built to accumulate, but instead they assume the role of generating paychecks. If they are designed poorly, they can fail. When they fail, you suffer. This is the number one reason American workers continue to punch the time-clock longer than they really need to – the fear of running out of money.
Corporate pension plans are rarely established anymore and most workers will not have the luxury of this monthly paycheck. Therefore, retiring on time is harder and seemingly impossible for millions of Americans. Working for the government is an exception. It seems all governments; local, state and federal, have established pension plans. Is it any wonder why so many people want a government job? 25 years ago, working for the government meant low pay and long hours. Not anymore.
When trying to evaluate your prospects for retirement, you must step back and view the whole picture. Will retiring actually save you any money? If so, include that in your math. Once retired, your income tax bill will be slashed, right? You no longer will be contributing to investments, savings, and retirement plans, including your 401K, IRAs, and profit sharing. What about your automotive expenses? And your wardrobe needs? If you are retiring old enough, you will qualify for Medicare, so your healthcare costs will drop. If you back out all the expenses associated while working, you’ll need much less while not working.
As a rule of thumb, you’ll need 60% to 80% of your pre-retirement income in retirement. As long as you don’t go bananas and you maintain prudence, you should be able to maintain the same standard of living. With that number, subtract all of your pension income and your social
security income, if any. After that, you basically have your monthly deficit, which must come from retirement savings. But that is the tricky part: How do you invest your nest egg, just so wonderfully, that your monthly deficit is satisfied AND you don’t unnecessarily risk your nest egg from loss? This is where you need guidance. If you are standing at the gates of retirement and just don’t know what to do, call me. I charge nothing to sit and listen to your concerns; and, of course, there are no obligations.
Max ValaVanis, CFP® is a co-owner of ValaVanis Financial in downtown Melbourne and in Rockledge. Max specializes in lifetime income planning for Retirees while protecting principal. Max can be reached at 3