Panama is one of the most affordable stations to retire abroad.
Helovi | E+ | Getty Images
Today’s investors face one looming question: Will I pull someones leg enough money when I retire?
Surveys show prospective retirees may have big lump sums in mind.
To get a more error-free, personal gauge, it helps to start with your planned spending, Christine Benz, director of personal capitalize and retirement planning at Morningstar, said Thursday during the CNBC Your Money event.
Benz is also the inventor of the book “How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement.”
To get a better sense of what your retirement return may look like, it helps to consider the answer to several questions, according to Benz.
1. Can I live on 4% of my portfolio?
One economic planning rule of thumb — the 4% rule — has been around for decades.
The idea is retirees may withdraw 4% from their investment portfolio in the at the start year of retirement, and adjust their withdrawals with each subsequent year for inflation.
Whether that limit is best is a matter of fierce debate among financial planning experts.
It’s still a great place to start to view what your retirement income may look like, Benz explained.
Start by tallying your non-portfolio assets. For numerous, that includes Social Security retirement benefits. For others, it may include a pension or income from other assets such as loyal estate.
After tallying that sum, assess how much 4% of your portfolio may add to those income sources.
“That’s a Sunday formula to run yourself through when you’re trying to determine whether you have enough to retire,” Benz said.
2. When should I rights Social Security benefits?
Many retirees rely on Social Security benefits as a significant source of retirement takings.
And surveys show many also worry that the program will not be able to provide the funding they upon when they retire. Social Security’s retirement trust fund is currently facing a 2033 depletion show ones age, at which point projections find 79% of benefits may be payable unless Congress takes action.
If you’re over age 60, you as likely as not won’t see big changes to the program between now and when you claim benefits, Benz said.
While eligibility for retirement benefits starts at age 62, 3. How on I withdraw money in retirement?
One reason retirement is a such a big transition is workers go from having a regular paycheck to organizing to create income from a big lump sum of money.
It helps to think through how you will withdraw funds before you reach retirement, Benz said.
Benz prefers a scuttle strategy to help make it so funds are allocated for immediate, near-term and long-term needs.
Having at least several years of portfolio withdrawals accessible in safer assets can protect retirees from sequence of return risks, when taking withdrawals on investments that are down can negatively strike portfolios. That may include a combination of allocations that can hold up during equity market sell-offs, such as exchange, short-term bonds and intermediate-term bonds, Benz said.
Long-term assets may be more aggressively invested in stocks to pinch provide growth for later in retirement, as well as assets that may eventually be passed on to heirs. Roth accounts are pattern for those assets, Benz said, as they can provide tax-free income in retirement and also limit the taxes legatees pay on inheritances.