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How Much Is Enough? Four Keys to Success in Retirement

Determining when you can retire and how you can stay comfortably retired is crucial to financial success. Here are four tips from our expert to make that a reality.

By Jonathan DeYoe

Financial media is often hyper-focused on current events and developments, trying to “time” the market with investment selections or allocations. This is a narrow way of thinking. Most investors should really be emphasizing a long-term plan to achieve the goal of a comfortable retirement.

Jonathan DeYoe, CPWA®, senior vice president at EP Wealth Advisors is a Lutheran Seminarian, turned Buddhist Academic, turned financial advisor and educator. He is the best-selling author of Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing your Happiness Dividend. He writes and talks about the intersection of money and happiness at Mindful Money – a financial education company. Jonathan is based in the EP Wealth Berkley office, where he helps clients manage their finances and investments, with the goal of long-term happiness and well-being in mind.

Jonathan DeYoe

Many people don’t start thinking about retirement and the costs associated with it until their 40s or 50s. The good news is, that’s not too late to build for a successful retirement. However, the earlier you start building knowledge and saving, the easier the process will be. Fortunately, markets are historically positive in the long term, and preparing for retirement ideally involves long-term investments.

Feeling uncertain? A look at historical market performance can provide peace of mind as you consider your future.

Key Steps for Success

Determining whether you can retire comfortably — and remain comfortably retired — comes down to four key steps:

  1. Estimating your need. Until you do the math, it’s difficult to accurately assess how much money will be required to feel comfortable in retirement. When estimating your needs, look at potential income sources and subtract expenses from there. For instance, if you currently spend $100,000 per year and expect a $25,000 annual income stream in retirement from Social Security, then your estimated need would be $75,000/year if you want to maintain that lifestyle. However, Social Security expectations become less clear the further you are from retirement — due to uncertainty about your annual earnings and contributions to the program between now and then. That forecasted $75,000 annual need in retirement will be influenced by inflation as well, to the point that retiring in 30 years would likely make the adjusted number more like $150,000 per year. 
  2. Capitalizing that need. After calculating the need, how can you capitalize to meet it? This entails determining how your pool of assets can generate adequate income that will also accommodate the rising cost of living over time. A couple of helpful guidelines are the 4% rule and the 25x rule. The 4% rule indicates that you can withdraw 4% of your savings each year in retirement and reasonably expect that savings to last 30 years. To find out the value of an adequate retirement nest egg that will let you withdraw 4% each year, multiply your anticipated yearly withdrawal by 25. In the example above, multiplying $75,000 by 25 equals roughly $1.88 million, so you would want at least that amount saved up by the time you retire. 
  3. Setting your savings target. To set a savings target, look at your current assets and see where you stand relative to the capitalized need. Consider life changes that may happen before retirement such as selling a business, receiving an inheritance, or downsizing your residence. Such a significant capital change could greatly increase your balance for retirement. Conducting this evaluation will help determine whether you’re currently on target to capitalize on your need in retirement or must boost your savings. 
  4. Creating the withdrawal plan. Unfortunately, many people don’t properly execute a retirement plan because they fail to save enough. The cost of living has been rising for decades and will likely continue to do so, making it a pivotal factor when developing your withdrawal plan. But too often, people don’t appropriately address this consideration or handle the actual withdrawals well. While the previously mentioned 4% rule is a good starting point, the amount withdrawn each year must also accommodate inflation. Creating, and following, a withdrawal plan is crucial because of the need to impose limits on how much additional income is withdrawn amid inflationary environments — and the fact that withdrawing money during down markets can make it difficult for a portfolio to recover.

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Legislative and Policy Changes

As times change, so do policies and legislation surrounding financial institutions and markets. So how do investors position themselves to be successful regardless of any such changes that may arise? The short answer: If planning is done right, they shouldn’t have to worry.

Investing is most effective as a long-term strategy. If you’re investing with a short-term approach, then new policies and legislation could greatly impact your portfolio and retirement. But these changes should have minimal impact if you’re investing for the long term with a diversified portfolio that allocates assets to various sectors and companies.

The reasoning: No matter the economic situation, money is still going to flow, and consumers and businesses are still going to spend. The difference is how they spend. At the height of the pandemic, for example, many consumers spent their money on goods and services delivered to their homes rather than going out to eat, buying gym memberships, or attending concerts and sporting events.

Building Belief

The best way to set yourself up for a comfortable retirement is to begin planning early in life. By getting started in your 20s or 30s and following the four keys detailed above, you’ll likely feel much better prepared and less stressed as retirement nears.

In addition to saving when you still have decades left until retirement, I recommend checking in with your financial advisor annually to evaluate and potentially adapt your plan. As you get closer to retirement, increasing these check-ins to twice a year will help limit uncertainties and ensure you’re on the right track. A consistent review process with your advisor should contribute to building your belief over time. If you receive expert answers to questions when you’re 40, for instance, you probably won’t need to ask those same questions again at age 50 or 60.

Belief in the markets is pivotal to your peace of mind when preparing for retirement. History clearly shows two fundamental trends: 1) the goods and services we buy will get more expensive over time, which is why equity exposure is so important, and 2) the more we zoom out on market returns, the less volatile they become — underlining the importance of patience and long-term thinking.

It’s almost impossible to know which direction the S&P 500 might turn tomorrow or what impact a new government policy could have on a particular stock. It also doesn’t need to be a concern because market performance is much more predictable in the long term.

The priority is to learn the basics of markets, such as understanding why diversification is crucial and how to rebalance. From there, everything you do should help build your belief that markets actually work, because they do. Set up your long-term plan, start saving early, diversify your investments, check in regularly with your advisor, and feel confident that the market will lead you to a comfortable retirement.

About the author: Jonathan DeYoe

Jonathan DeYoe, CPWA®, senior vice president at EP Wealth Advisors is a Lutheran Seminarian, turned Buddhist Academic, turned financial advisor and educator. He is the best-selling author of Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing your Happiness Dividend. He writes and talks about the intersection of money and happiness at Mindful Money – a financial education company. Jonathan is based in the EP Wealth Berkley office, where he helps clients manage their finances and investments, with the goal of long-term happiness and well-being in mind.


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