The Bogleheads' Guide to Retirement Planning by Taylor Larimore, Richard A. Ferri, Mel Lindauer, Laura F. Dogu, John C. Bogle Read Free Book Online Page A
savings for the year and your Social Security taxes from your gross income to get a rough estimate of your cost of living. Make adjustments for changes in housing costs, transportation costs, health-insurance premiums, and changes in tax laws that affect both wage earners and retirees. Use an online retirement savings calculator to see if your current level of savings will allow you to reach your retirement goal.
As you get close to retirement, you can examine the percent withdrawal rate that might be right for you. Based on your current savings and projected postretirement income, how much do you really need to withdraw annually to live comfortably? If you have been a consistent saver and live well below your means, you may find that a 3 percent withdrawal rate allows you ample resources and additional peace of mind.
LIFE’S UNKNOWNS AND THEIR IMPACT ON RETIREMENT PLANNING
According to a 2008 AARP survey, 51 percent of workers reported retiring earlier than anticipated. Of those who cited one or more negative reasons:
• 54 percent reported leaving due to health or disability
• 33 percent reported leaving due to downsizing or layoffs
• 25 percent left to care for a spouse or other family member
While we can plan for our future and work to create a future of our choosing, we cannot guarantee results. Life happens. We can only anticipate some of the potential threats and prepare contingency plans. The death of a family member, serious illness, and natural disasters are phenomena most dreaded by all of us. Events such as these may alter our lives, our goals, and our futures. Conservative planning, insurance, and emergency savings can cushion some of these blows, but they will still be felt.
Divorce is often a monumental financial setback for both parties. It can be very costly, financially and emotionally, and leave both parties to fend for themselves, rather than pooling their assets and talents. Many divorces result in individuals starting over again with their financial savings. Even living a frugal lifestyle and saving aggressively may not provide enough savings to allow retirement at the desired age.
Loss of employment, family-owned business bankruptcies, and frozen or bankrupt pension plans may also be devastating events. If these setbacks happen to couples as they approach retirement, there is little time to recover, and the only solutions are to continue working past the planned retirement age, or accept a retirement that potentially provides less opportunity to pursue postretirement goals.
The condition of the financial markets has a huge impact on individuals approaching retirement, as well as those who have just entered retirement. These investors are the most vulnerable to market downswings because they are at a point in their lives when their net worth is at its highest. Higher returns come only with higher risk. If you have reached your financial goal in advance of your desired retirement age, there is good reason to take a more conservative approach to investing.
TABLE 1.1 RETIREE CONFIDENCE IN HAVING ENOUGH MONEY TO LIVE COMFORTABLY THROUGHOUT THEIR RETIREMENT YEARS
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1996-2008 Retirement Confidence Surveys ®
The effect of a market downturn can be seen in the Employee Benefit Research Institute (EBRI) Survey in Table 1.1 . In the 2008 data, note the 15 percent drop in retirees’ confidence that they would have enough money to live comfortably in their retirement years. This survey was conducted in January 2008, nine months prior to the financial crisis in October 2008.
Housing downturns also put your plan at risk. As evidenced by the 2008 housing downturn and credit crisis, even the family home can be at risk. Traditional thinking on housing was to buy the biggest house you can afford because it will always go up in value. That may no longer be accurate. The foresight not to put more money into housing than
As you get close to retirement, you can examine the percent withdrawal rate that might be right for you. Based on your current savings and projected postretirement income, how much do you really need to withdraw annually to live comfortably? If you have been a consistent saver and live well below your means, you may find that a 3 percent withdrawal rate allows you ample resources and additional peace of mind.
LIFE’S UNKNOWNS AND THEIR IMPACT ON RETIREMENT PLANNING
According to a 2008 AARP survey, 51 percent of workers reported retiring earlier than anticipated. Of those who cited one or more negative reasons:
• 54 percent reported leaving due to health or disability
• 33 percent reported leaving due to downsizing or layoffs
• 25 percent left to care for a spouse or other family member
While we can plan for our future and work to create a future of our choosing, we cannot guarantee results. Life happens. We can only anticipate some of the potential threats and prepare contingency plans. The death of a family member, serious illness, and natural disasters are phenomena most dreaded by all of us. Events such as these may alter our lives, our goals, and our futures. Conservative planning, insurance, and emergency savings can cushion some of these blows, but they will still be felt.
Divorce is often a monumental financial setback for both parties. It can be very costly, financially and emotionally, and leave both parties to fend for themselves, rather than pooling their assets and talents. Many divorces result in individuals starting over again with their financial savings. Even living a frugal lifestyle and saving aggressively may not provide enough savings to allow retirement at the desired age.
Loss of employment, family-owned business bankruptcies, and frozen or bankrupt pension plans may also be devastating events. If these setbacks happen to couples as they approach retirement, there is little time to recover, and the only solutions are to continue working past the planned retirement age, or accept a retirement that potentially provides less opportunity to pursue postretirement goals.
The condition of the financial markets has a huge impact on individuals approaching retirement, as well as those who have just entered retirement. These investors are the most vulnerable to market downswings because they are at a point in their lives when their net worth is at its highest. Higher returns come only with higher risk. If you have reached your financial goal in advance of your desired retirement age, there is good reason to take a more conservative approach to investing.
TABLE 1.1 RETIREE CONFIDENCE IN HAVING ENOUGH MONEY TO LIVE COMFORTABLY THROUGHOUT THEIR RETIREMENT YEARS
Source: Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., 1996-2008 Retirement Confidence Surveys ®
The effect of a market downturn can be seen in the Employee Benefit Research Institute (EBRI) Survey in Table 1.1 . In the 2008 data, note the 15 percent drop in retirees’ confidence that they would have enough money to live comfortably in their retirement years. This survey was conducted in January 2008, nine months prior to the financial crisis in October 2008.
Housing downturns also put your plan at risk. As evidenced by the 2008 housing downturn and credit crisis, even the family home can be at risk. Traditional thinking on housing was to buy the biggest house you can afford because it will always go up in value. That may no longer be accurate. The foresight not to put more money into housing than
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