Thursday, June 25, 2009

Retirement Planning - Is $1 Million Enough?

Trying to accumulate $1,000,000 use to be a retirement goal for many Americans. It represented both a sizable amount of money and put you into an elite group. You were now considered a "Millionaire."

Unfortunately, times have changed and the the new question is now: "Is $1 million still enough today?"

Well, to steal a cliche... It depends! Inflation over the years has eroded buying power and everyone has different goals and expectations of what his/her retirement will look like. For some, it will simply be relaxing and going trout fishing. Fortunately for this person, fishing isn't too taxing on the budget. For others, Royal Caribbean easily rolls off the tongue and cruising the world is the dream. This individual will require a whole different budget.

Our parents generation use to rely upon years of company loyalty and thus a pension check. Toss in social security as an income supplement and you were all set. Today's generation of workers are facing a different set of variables. For starters, most people no longer stay with one company their entire career. And, even if the do, it no longer guarantees them a pension.

Tomorrows retiree's will have to rely upon several sources of income to replace their salary. You will have to carefully evaluate your retirement plan and how much annual income you will need to suit your lifestyle. Unfortunately, reality dictates most people spend more time planning dinner than retirement, so for many this will require putting pen to paper.

Let's look @ an example: A couple with a household income of $52,000 will probably seek to replace 75-100% of their income. Assuming the mortgage is paid off and the kids are out of college, doing with less and maintaining your existing lifestyle is feasible. In simple math; less expenses = less required income.

Household income of $52,000 per year equates to roughly $4,000 per month. Assuming no pension, social security and other sources of income will have to suffice. Should social security provide $1,500 per month (simply an estimate), another $2,500 will be required to fill the void. Retirement plans (401k, Traditional IRA, Roth IRA, etc.), annuities (variable and/or fixed), rental income and/or part-part employment are the obvious choices.

The problem comes into play with higher income levels. An individual wishing to maintain a current lifestyle of $120,000 per year will find a different set of challenges. Once again, we'll assume no pension. His/her retirement income will have to be derived from social security and other various sources. Most people in this tax bracket will max out and receive social security benefits just over $2,000 per month (assuming a retirement of 67 years of age). If $10,000 is the magic number per month and social security provides just $2,000 per month, an $8,000 shortfall exists. Where does the remaining income come from???

As a Financial Advisor, I've always said, "I don't care how much you make, tell me how much you can save." For many, these words will be the difference in having an enjoyable retirement and not.

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