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Asset Allocation
Often financial "experts" make asset allocation difficult to understand. My goal in this series of articles is for you to understand asset allocation thoroughly, in an easy to understand format.How to Calculate Retirement Needs
Retirement Calculator, Inc.
calculateretirement.com
If you are planning for retirement, your head is probably spinning with questions like these:
Fortunately, most of these questions can be answered painlessly through the use of a retirement calculator, like the one found at retirementcalc.com. How do I calculate retirement needs? You can quickly calculate the answer to this question by using retirementcalc.com's calculator. Retirement Calculator Version 3.0 is easy to use and includes all these great features:
Will my money last throughout my retirement? Retirement can span a third or more of your lifetime. Making your retirement portfolio last as long as your working life did, can be a challenge. By plugging a few simple numbers into the retirement calculator you can help answer this question in a snap. How much money can I withdraw from my portfolio each year (retirement withdrawal rate)? This is a crucial question to know the question to. If you withdraw too much, your money will not last your entire retirement. If on the other hand, you withdrawal too little, then you may end up eating macaroni and cheese for dinner every night for no reason. It is also important to remember the U.S. government has placed minimum required distribution (MRD) requirements on many retirement instruments such as, 401(k)s, 403(b)s, and traditional IRAs. Entering different withdrawal scenarios into the retirement calculator is easy and its results are revealed instantly.How should my money be allocated? Unfortunately, many retirees make the mistake of putting all their money in "safe" investments, such as money market accounts and certificates of deposit. They take this action, because they mistakenly believe that once they retire, they should not take risk of any kind. The retirement calculator allows you to input any asset allocation you desire. You can change the allocation until you find the one that is right for your situation. How will inflation impact my purchasing power? Inflation has a withering affect on your purchasing power. Historically, the inflation rate has been about 3 percent. Thus, with just the average inflation rate of 3 percent, your costs double every twenty-four years. You can expect to spend as much time in retirement as you did when you worked. Therefore, you can expect to see your expenses double during your retirement years. Again the retirement calculator can show inflation's impact on your portfolio immediately. How will management fees affect my portfolio's performance? The latest feature added to the Retirement Calculator Version 3.0 is the impact management fees have on your plan. Usually, management fees account for roughly a one percent loss of your portfolio each year, though this percentage can be as high as 5 percent or more. One percent may not sound like an insignificant amount, until you consider that on a $500,000 portfolio, that means you will have to make $5,000 a year just to breakeven. A five percent management fee on that same a $500,000 portfolio means you will have to make a whopping $25,000 a year to breakeven. How do I keep up-to-date on the latest news impacting my retirement? To keep informed about retirement topics, try a FREE membership to Retirement Intelligence Information Services. At no cost to join, you will receive a bi-monthly newsletter full of financial information to inform and empower you to have a successful retirement. As an added bonus, www.retirementcalc.com will include the Retirement Calculator Software Version 2.0 (a $24.95 value seen live on CBS TV) for FREE. |
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Analysis of the Economics of Early Social Security Withdrawal
Robert J. Phillips
Chief Retirement Consultant
Deciding whether or not to take the early withdrawal of social security at age 62 can be difficult. If you need this income at 62 to fund your retirement the decision is fairly straightforward. Take it early! On the other hand, if you have another source of revenue to fund your retirement your decision will be primarily based on lifestyle, health and investment preferences.
Several factors can affect your decision. First is your life expectancy. If you are in good health and have a family history of living beyond 90 then waiting for full benefits may be best. Two other factors impact this decision. First and most important is the value of money or your expected return from your investments. If you are using other investments instead of social security to fund your retirement you should use the rate of return of these investments as your value of money. There is another way to look at the value of money. If you do not require the social security money to live, you can invest the distributions for the future. The rate of return of this investment is your value of money. If your investments will make larger returns such as stocks this would favor taking the early withdrawal.
The last factor impacting your decision is inflation. Social security includes an annual adjustment based on inflation. You cannot control this variable but you should be aware of its impact. If future inflation is significant it will favor a later full distribution
FREE Social Security Calculator:
Find Out Your Breakeven AgeWe developed a calculator to assist in analyzing the impact of taking early benefits at age 62 or waiting for full benefits at age 66 to 67 depending on the year you were born...If you were born in 1960 or later your full benefits will begin at age 67 and your reduction for early benefits at age 62 will be 30%. If you were born between 1946 and 1960 your full benefits begin as early as age 66. We have included a chart that summarizes information.
To use the calculator you need to input your year of birth. You also need to input a value of money up to 10% and a projected inflation adjustment. The calculator analyzes income generated over time from both the early and full benefit investments. It calculates the age at which full social security will catch up and breakeven with the early withdrawal. If you were born before 1960 your breakeven age will be impacted by the year you were born. An early breakeven age favors waiting for full benefits.
The social security calculator is not the final answer whether to take an early withdrawal but it does give you additional economic data to assist in that decision. Ultimately you must balance income, investments and lifestyle to optimize your enjoyment during your retirement years.
