Immediate Retirement Income
Now Or Later?
Depending on what assets you possess and whether or not you have something like an IRA or a 401k, the strategy you utilize to make use of your accumulations near-term and long-term will vary. It’s important to consider the tax consequences of savings and investment options before deciding the best way to accumulate retirement assets. Will contributions be made with pre-tax or after-tax dollars? Will earnings be taxed currently or deferred? When accumulations are withdrawn, will they be taxed fully, partially or not at all? The answers can make a substantial difference in determining how much retirement income a selected strategy will create.
How Much Income Do I Need?
There is a key ratio to consider for retirement. In general, you should expect to need about 80% of your pre-retirement income to cover your cost of living in retirement. In other words, if you make $100,000 now, you’ll need about $80,000 per year (in today’s dollars) after you retire, according to this principle.
The idea is that once you retire, you’ll be able to eliminate certain expenses. You’ll no longer have to save for retirement (obviously), and you might spend less on commuting expenses and other costs related to going to work.
Key Considerations
There is no perfect method of calculating your retirement savings target. Investment performance will vary over time, and it can be difficult to accurately project your actual income needs.
Not all retirement plans are equal when it comes to income. Money you withdraw from a traditional IRA or 401(k) will be considered taxable income. On the other hand, any money you withdraw from a Roth IRA or Roth 401(k) is generally not taxable at all, which may change the calculation a bit.
That’s just one example, and there are other possible considerations as well. While we’re trying to present the broad strokes here, it’s still a good idea to consult one of our financial advisors who can not only tailor a retirement savings goal to your particular situation but can also help set you on the right path with a savings and investment plan that can make sure you reach your goals.