Saving for retirement is one of the most important things in securing your financial future. Although programs like Social Security can help, they are often not enough on their own. This is why it is crucial to have your own retirement savings. You may be wondering exactly how much money is enough; for example, could you survive on $800,000? We’ll take a look.
For more help planning for your retirement, consider working with a financial advisor.
Determination of pension expenses
The first step to knowing how long your money will last is to figure out your living expenses:
Fixed costs
Fixed expenses are those that do not change from month to month. For example, this may include rent or a mortgage, insurance premiums and utilities. Add up these expenses and see how much you spend monthly and annually.
Variable expenses
Variable expenses are expenses that are not the same each month. Many things could fall into this category, including travel expenses, health care costs, entertainment, and charitable donations. Since these expenses are variable, you’ll probably need to set a limit on how much you can spend on them each month. If you reach this limit, you must either use money elsewhere in your budget or forfeit the purchase.
Calculation of retirement income
The next challenge is calculating retirement income. This may be more difficult than calculating your income while working, as you may have more sources of income. For example, your retirement income could include:
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Social Security
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Pension plans
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Pension saving
The good news is that Social Security and retirement benefits don’t change from month to month. They may include increases in the cost of living each year, but their relative stability makes it easier to plan around them. What can be harder to plan for is retirement savings, especially if you rely on investments. You can use SmartAsset’s free retirement calculator to see if you’re on track to reach your retirement goals.
Estimated length of retirement
Another retirement planning challenge is estimating how long you will be in retirement. This is not an easy question to answer, as many variables can affect life expectancy. However, estimating your life expectancy is an important part of retirement planning. People are living longer than they used to, so it’s important to be prepared if you’re going to live several decades after you retire. Life expectancy is currently around 77 in the United States.
In addition to life expectancy, you need to consider factors such as your current health status and family history and how this will affect your life expectancy. Finally, you should use an inflation calculator to see how long your money will last.
Retirement Portfolio Styles
The next step is to determine your investment strategy. For example, your portfolio could be more conservative or more aggressive. Here’s a quick look at what an $800,000 retirement portfolio might look like, depending on your strategy:
Conservative Portfolio
With a conservative portfolio, your investments will consist primarily of relatively low risk investments. For example, you might have:
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50% bonds ($400,000)
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30% cash ($240,000)
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20% equity ($160,000)
The goal of a conservative portfolio is generally to preserve wealth rather than create it. So you can also focus on blue chip stocks that pay dividends rather than growth stocks.
Balanced portfolio
A balanced portfolio may be suitable for retirees who seek a combination of growth and income and are willing to accept some risk in exchange for higher returns. An example of your asset allocation could be:
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50% equity ($400,000)
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30% bonds ($240,000)
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20% cash ($160,000)
This portfolio includes a significantly higher allocation to equities, and cash becomes the lower percentage. A balanced portfolio often includes a combination of stocks, bonds and cash. He tends to focus on diversified investments that offer a combination of growth and income.
Aggressive Portfolio
An aggressive portfolio may suit retirees with a longer time horizon who are willing to accept higher risk in exchange for higher potential returns. If you have an aggressive retirement portfolio of $800,000, stocks become the center of your portfolio:
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70% equity ($560,000)
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20% bonds ($160,000
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10% cash ($80,000)
An aggressive portfolio may include a mix of high growth stocks and small cap stocks. Some aggressive investors might venture into alternative investments like commodities or precious metals.
It’s important to note that these are examples only and the right investment strategy for your retirement portfolio will depend on your personal goals, risk tolerance and time horizon. It’s always a good idea to consult a financial advisor before making major investment decisions, especially when planning for retirement.
Conclusion
How long the $800,000 will last in retirement depends on factors such as your expenses, retirement income, and how long you will be in retirement. If you have substantial income from sources like a pension and Social Security, an $800,000 portfolio could last for many years. This is especially true if your expenses are low and you don’t have large health care expenses. But again, there are many variables. It is best to meet with a financial advisor who will help you build a personalized retirement plan.
Tips for Retirement Savings
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A financial advisor can guide you through important financial decisions, such as determining your investment strategy. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.
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Deciding how to invest can be a challenge, especially when you don’t know how much your money will grow over time. SmartAsset’s Investment Calculator can help you estimate how much your money will grow to help you decide what type of investment is right for you.
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How long will $800,000 last in retirement? appeared first on SmartAsset Blog.