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Discipline Your Retirement Savings

Discipline Your Retirement Savings

The earlier you start saving for retirement, the easier it is to build a nest egg. Discipline your savings by having a percentage of your salary automatically deferred to your 401(k) or another retirement vehicle. Increase the amount you defer as your income rises. Then, as you age, refocus your investment portfolio. Shift from income growth to income risk management. By following these steps, upon retirement, your portfolio will generate a steady income stream and be poised to last throughout your lifetime. But first, you need to know how much to save. 

HOW MUCH SHOULD YOU SAVE FOR RETIREMENT?

How much you need to save today depends on how much you will spend in the future.

The simple calculation at right can help you determine how much retirement income is enough for your situation.

This calculation is a general guide, not a recommendation or investment advice.

HOW WILL YOUR EXPENSES CHANGE?

Some monthly expenses may decrease when shifting from your working years to your retirement years, while others may increase. 

The monthly amount you need to withdraw from your retirement savings may be less than the paycheck you receive during your working years.

Expenses that generally decrease in retirement

Expenses that generally increase in retirement

Retirement plan contributionsHealth care
Income taxesPrescription drugs
Transportation costs (commuting)Property taxes
Work clothesTravel
Dining out and prepared foods
Mortgage expenses


SOURCES OF RETIREMENT INCOME

During the working years, your primary income likely comes from a paycheck. Once you stop working full time, your retirement savings is likely to provide the bulk of your income, supplemented by Social Security, a pension, or a part-time job. 

In general, Social Security will replace only a portion of what you earn today. The more you make during your working years, the less you can count on Social Security as a replacement for your preretirement paycheck.

According to the Social Security Administration, the average monthly benefit for retired workers as of May 2021 was $1,554 or about $359 per week. Whereas the Bureau of Labor Statistics reported the median usual weekly earnings of full-time wage and salary workers for the 1st quarter of 2021 was $984, nearly three times the Social Security benefit.  

SAVE MORE AS YOUR INCOME GROWS

Most people who are just starting out can’t afford to  save a high percentage of  their income. 

Instead, consider starting out  at a lower, more affordable  rate early on and increasing your savings rate as your income grows. 

This approach may boost  your chance of achieving your retirement income goals.

INVEST ON YOUR OWN OR WITH AN ADVISOR? 

At some point in your life as an investor, you will likely consider hiring a financial advisor. Factors involved in the decision are: 

  1. Your comfort level in selecting and monitoring your investments, and; 
  2. Your available time to manage your retirement portfolio.

Does the idea of researching, selecting, and monitoring investments, rebalancing the asset mix periodically, and making other adjustments as needed excite you? If you feel uneasy, consider deferring this responsibility to someone with more expertise. 

Saving for retirement can be simple. The team at Hurlow Wealth Management is here to help. For nearly three decades, we have helped clients find clarity, feel confident, and achieve comfort in retirement. Click HERE to schedule a free consultation today.  

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Source: Marlena I. Lee, “The Retirement Income Equation” (Dimensional Fund Advisors, 2013): us.dimensional.com/-/media/Dimensional/Documents/US/Auxiliary/defined-contribution/The-Retirement-Income-Equation.pdf

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