You worked hard your whole life and you’ve saved all those pennies for a rainy day.Your family and close friends are proud of you.Now it’s time to retire and enjoy the fruits of your labor.Retirement is meant to be a cheerful and satisfying milestone in your life and yet — for many — it is a frightening experience.Will you be able to maintain your current lifestyle as you retire?How much can you spend each year?What happens if you run out of money?These questions and many others usually arise as you might not have worked with the right financial advisor to devise a credible plan.With the financially sound plan, you have the ability to take control of the situation and effectively become your own boss.Let me show you how.Are You Ready For Retirement?Calculating and projecting your
Tiho Brkan considers the following as important: Personal finance, Portfolio Management
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You worked hard your whole life and you’ve saved all those pennies for a rainy day.
Your family and close friends are proud of you.
Now it’s time to retire and enjoy the fruits of your labor.
Retirement is meant to be a cheerful and satisfying milestone in your life and yet — for many — it is a frightening experience.
Will you be able to maintain your current lifestyle as you retire?
How much can you spend each year?
What happens if you run out of money?
These questions and many others usually arise as you might not have worked with the right financial advisor to devise a credible plan.
With the financially sound plan, you have the ability to take control of the situation and effectively become your own boss.
Let me show you how.
Are You Ready For Retirement?
Calculating and projecting your retirement capital can be a stressful — and at times — a life-sobering experience.
But don’t worry.
Playing around with expense side and thinking of new ways to fill that saving gap can usually solve your problem.
However, in some cases, delaying your retirement might be the wisest option because every additional year of work you have under your belt adds to your savings nest egg.
It also means another year of living where your savings don’t have to pay for your lifestyle.
In some cases, delaying your retirement by a few years can have a dramatic effect on the end result.
Depending on your chosen field, I am actually a huge proponent of never retiring.
Personally, I plan never to do so.
But then again, I love my lifestyle and my work. Not everyone is that fortunate.
Studies have proven of emotional, social and economic benefits when one decides to keep working — especially if they enjoy what they do.
However, in cases when retirement is eventually necessary but not urgent, I would advise you to phase your retirement.
You might just get the best of both worlds there.
Your Retirement Strategy
Two decades ago a financial advisor by the name of William Bengen first articulated a safe withdrawal rate as a rule of thumb when it comes to using your savings or retirement assets.
This became known as the “Bengen Rule”.
Mr. Bengen’s study looked at how much savings could you withdraw in each year of your retirement and not run out of money.
The research was conducted between 1926 and 1976 while focusing on a simple and balanced portfolio of 50% stocks and 50% bonds.
The goal was to find a successful withdrawal rate, where a retiree could live of savings for 20 to 30 years.
Mr. Bengen concluded that approximate withdrawal rate should be around 4%.
Within the financial advisor industry, this number is known as safe withdrawal rate or SWR.
If you are concerned about running out of money too early in your retirement, one of the first strategies you should consider is lowering your withdrawal rate to 4% (or lower if possible).
You Need To Stay Disciplined
Being as disciplined as possible will certainly help.
What do I mean by disciplined approach?
Isn’t retirement meant to be the part of your life where you finally reap the rewards of all the hard work and let your hair down?
Yes, for sure.
Depending on your savings pool, discipline means you stay prudent and remain well prepared.
There are a couple of steps one could take here.
Firstly, you should set aside what professionals call an emergency fund.
Usually 6 to 12 months worth of your spending and future expenses should do the trick.
Keep this capital easily accessible.
Do not lock it in with a term/time deposit, by trying to earn an extra couple percent of interest from the bank. The goal here is to be liquid.
Secondly, hire an expert to construct and manage your portfolio.
Now, some will advise you to do it yourself.
Regardless of how skillful or experienced you think you are — during downturns, recessions and bear markets — you will need an experienced advisor to help you with:
- Control of your emotions, since most investors panic during downtrends.
- Buying value and reaping the rewards with a new recovery. Let us not forget the goal of investing: buy low and sell high. Easy to quote it, painfully hard to follow it.
- Readjusting your withdrawal rates as the portfolio underperforms, since you don’t want to be spending more during downturns.
Furthermore, a skillful wealth manager should have an outstanding strategy in place that will outperform the market and minimize risk.
If you haven’t read about my Atlas Portfolio, you should take the time to read it before continuing this article.
Let us assume that you decided to retire in 1997 at the age of 65, with one million dollars in your 401k or superannuation fund (American and Australia saving schemes).
In most western countries, life expectancy is around 85 years.
Atlas Portfolio For Your Retirement
Now, let us assume you used my strategy in your retirement fund.
What withdrawal rate could have been possible?
Let us remember that Mr. Bengen described a safe withdrawal rate of 4%, which in this case means living on $40,000 annually or $3,330 per month.
Note: Your advisor should also adjust this withdrawal rate with annualized inflation, to make sure you’re keeping up with rising cost of living.
Using the Atlas Portfolio strategy, this was clearly a very conservative plan.
Using SWR (safe withdrawal rate of 4%), your retirement portfolio would have grown by 3.3 times over the last two decades — on top of paying for your modest lifestyle needs.
Bumping the withdrawal rate towards 6%, or even 8%, would still have seen the portfolio grow on top of living comfortably.
With a 6% withdrawal rate, your retirement fund would still be more than double the initial capital after 20 years.
With a pushier 8% withdrawal rate, you live a very comfortable lifestyle (spending income of $6,660 per month) and would still maintain your starting capital.
As we get more aggressive towards 9%, the capital would most likely have legs to run the 25-year course of action — but the retire is definitely taking a bit of a risk.
Mind you, the higher the withdrawal rate, the more luxurious and eventful the retirement will be.
Plan For Retirement The Right Way
This post only touches the surfaces of retirement preparation and showcases the consistency of the Atlas Portfolio over the last two decades.
When planning for retirement, it is sessional to work with an accomplished and proficient financial advisor and market investor.
If you would like to know how I am helping grow my client’s wealth and put a strategy in place so that their capital lasts throughout their retirement years — get in contact by clicking below and filling out the brief survey.
I’ll get back to you within 24 hours.