Surveys consistently indicate that anywhere from 75%-80% of Americans approaching retirement have no idea how much money they need to retire!
Instead of just assuming that retirement is the right time to start getting advice, ask yourself this critical question:
How confident are you that you have enough to retire and live the lifestyle you want in retirement?
There is no simple answer. Many people think $1,000,000 is enough. It sure sounds like a lot of money, but according to your (1) age and (2) spending habits, you could be in for a rude awaking. At average rates of return and reasonable spending levels of around 4%-%5 from your $1,000,000 portfolio, your money can last anywhere from 15-20 years. The problem is that average retirement periods nowadays are 30 to even sometimes 40 years – You can do the math – Not good!
Take this case for instance:
Imagine you had a $500,000 portfolio and you are were spending $25,000 a year, or a 5% withdrawal rate, to support your lifestyle.
Well, that portfolio should last you about 25-30 years, assuming you get a decent rate of return of about 6.7% over that period.
However, if you took that same $25,000 per year out of your portfolio and you had some poor returns early on, you would run out of money by year 13.
This problem is called the Sequence of Returns Risk and it causes people who have saved diligently to run out of money due to forces they cannot control such as market returns.
See the graph below where the couple on the left is not so lucky compared to the couple on the right:
How can you avoid this issue?
Simple, start getting advice NOW, so that you can be prepared for events outside your control. The earlier you start working with an advisor, the better prepared you will be for unforeseen events in your life.
Check out these findings:
- People who work with financial advisors are more likely to report happiness, confidence, and stability in their financial and personal lives according to a survey from Northwestern Mutual.
- A study from John Hancock (John Hancock 2015 Financial Stress Survey) showed that 70% of those who work with a financial advisor are on track or ahead in saving for retirement, compared to just 33% of those who don’t use an advisor.
- On average, people who have no retirement plan have around $45,700 in retirement savings. In comparison, those who have a written plan prepared by a professional advisor have about $203,000 saved for retirement, according to Bank of America.
In reality, there is a cost to you to do nothing until retirement:
If you wait until retirement to get help from an advisor, you may not have enough to do the things you worked so hard to be able to do in retirement!!!