How Much Money is Enough for a Comfortable Retirement?

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In 2011, the oldest members of the Baby Boom generation reached retirement age and over the next 15 years, around 8,000 Boomers per day will turn 65. And as more Americans contemplate life in retirement and preparing for it, they need to have a clearer picture of what their income (NYSEARCA:AGG) needs will be after they’re done working full-time.

Although overall retirement income adequacy for Baby Boomers and Generation X households improved last year, helped by rising stock prices (NYSEARCA:VTI), the gap between haves and have-nots in retirement readiness is still very wide. Various factors, especially access to 401(k)-type retirement plans, can produce significant individual differences, according to the Employee Benefit Research Institute (EBRI).

In my latest retirement planning video, I talk with Ron Surz at PPCA about calculating the exact sum a person will need to enjoy a comfortable lifestyle. I also examine strategies for people who haven’t saved enough, in addition to reaching a feasible money accumulation goal for individuals who are still working.

Longevity and high health care costs still play huge roles in retirement income planning.

For both of these factors, a comparison between the most “risky” quartile with the least risky quartile shows a spread of approximately 30% for the lowest income range, approximately 25% to 40% for the highest income range, and even larger spreads for those in the middle income ranges.

“It would appear that while retirement income adequacy depends to a large degree on the household’s relative wage level and future years of eligibility in a defined contribution plan, a great deal of the variability in these values could be mitigated by appropriate risk-management techniques at or near retirement age,” said Jack VanDerhei, EBRI research director.

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3 comments

  1. Jay says:

    Ron,
    Thanks for the insightful article. I retired last year and, of course, had been planning it for some time. I concur that the first step is really understanding your spending. I started tracking mine monthly years ago and still do. Then figure out if you have enough saved to reasonably cover it with dividends, interest, covered call writing, etc.. I never figure in market appreciation or Social Security because you just do not know. Take it when you can get it!

    I like Mr. Surz’s “22 times spending rule”. And please always add taxes to that!

    Oh, and having an ETFG subscription does not hurt either :) – jay

    • Ronald Delegge says:

      Jay, Great to hear from you again and glad you liked my latest video. The covered call strategy is a solid alternative income technique and it’s an extra boost to your dividend income. Mr. Surz, who I interviewed is an incredibly smart man – especially when it comes to the subject of retirement. He’s extremely well versed and my questions never trip him up. Also, thanks for being a loyal subscriber and the nice comments. You rock! Best to you and your family down there in LA.

      • Jay says:

        Ron,
        Thank you for getting me interested in covered call writing for retirement income.

        It is no panacea. Nothing is. I have written a call or two on a stock that proceeded to go to the moon and I felt left at the cold bus stop!

        But there are ways to manage that. Please write an article about how it works for our colleagues here. I call it “dial a number”. I figure how much income I want in a given month and write enough calls to provide it. The rest of my holdings run free for appreciation.

        If the market goes down I keep all my holdings and my income from the calls I would not have gotten otherwise. If the market goes up I will be called and sell some things at the price I agreed to. Often that is at a net price less than if I had not written in the first place. Covered call writing will always under perform an up trending market. That is why I never do it on more than half my shares in any given month.

        So again, it is not perfect, nothing is. But it’s a nice way to be landlord of part of your portfolio for some monthly rent! -jay

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