Q. I’m 53 and saving for retirement. I’ve set aside enough for college for my two kids and I only have a mortgage. How can you figure out how much to save before you can stop working? I’m willing to work part-time also if I need to as I think I may get bored after a few years of full retirement, so I’m flexible.
— Planning and hoping
A. Congrats on thinking ahead to when you can stop full-time work.
Flexible is good.
The thought of retirement can be exciting, but it can also make people feel apprehensive.
It opens up a world of possibilities, but it can also be daunting when you begin to wonder if you have enough set aside to finance your lifestyle in retirement, said Deva Panambur, a fee-only planner with Sarsi, LLC in West New York.
You’ll need to answer a lot of questions, including what kind of retirement you think you want to have, he said.
These include whether you plan to travel, volunteer, spend time with family and friends, or take up new hobbies.
“Some people end up working part-time and enjoy a semi-retirement which could turn out to be the best of both worlds while also providing financial flexibility,” Panambur said. “It is also important to consider whether you would relocate to a different state and/or downsize your living arrangements.”
On the financial side there are three things to consider, he said.
The first is your balance sheet, or your assets and liabilities.
Second is your expected retirement income, which would include income from Social Security, any pension and income from part-time work.
The third is your expected expenses including taxes, planned gifts and charitable contributions.
“While some expenses are reduced during retirement other expenses, such as for healthcare or to finance a planned lifestyle or travel plans could be higher in retirement. In general, it has been found that expenses outside of specific goals tend to be 80% of the pre-retirement expenses for most people,” he said. “But this is just a yardstick and may not apply to everybody.”
For some, he said, it is also important to consider legacy goals such as bequests to children or to a favorite cause.
Taking all this into consideration, your retirement would be successful if you do not outlive your money and are able to comfortably finance all your expenses, goals and objectives using your expected income and any withdrawals from your assets, he said.
Withdrawals from retirement accounts is a function of your investment strategy, which is dependent on your ability and willingness to accept risk or your risk profile, he said.
“Financial advisors use Monte Carlo simulation in which inputs such as expected return of your portfolio are changed, and the probability of retirement success is calculated over 1,000 or so scenarios,” he said.
This would help you review your chances for success.
There are also ways to alter those projections, he said.
“There are several levers to pull and many moving parts when it comes to retirement planning such as creating tax efficiencies by opportunistic Roth conversion, income management, optimal Social Security strategy, suitable portfolio construction, efficient withdrawal strategy, healthcare strategy and more,” he said. “You will need to consider all these in a holistic manner while planning for retirement.”
Consider a sit-down with a financial advisor who can help show you the possibilities based on the specifics of your situation.