Wednesday, October 12, 2005

Retirement Planning

JLP at All Things Financial posted a list of questions everyone should ask themselves about retirement (from a book called The Savage Number, about how much money you need to retire). I have asked myself these questions but find some of them difficult to answer.

1. How long will I live? I expect to live well into my 90s based on my health and family history, knock on wood.
2. What will inflation do to the value of my savings? Uh, make them worth less?
3. How can I save enough? I'm saving money already, but I've posted on this site about a few things I could do better.
4. How should I invest the money I’ve saved for retirement? I think I'm still young enough to invest aggressively in stocks, but I also try to hedge my bets a little with bonds, CDs and other conservative investments, maybe more than I should.
5. How much will I spend to live in retirement? All I know is I want it to be more than I spend now! I want to have a car! I want to travel! I don't want to have to live in the boonies somewhere to lower my housing costs!
6. How much can I withdraw each month without running out of money? I've read that 4% of the principal per year is usually the rule of thumb-- if I have $2 million when I retire, that would give me $80,000 a year. But by the time I retire that may not be enough because of inflation.
7. What’s the biggest danger to my retirement plans? The city I choose to live in now, and my desire to stay there. Also the industry I choose to work in. New York is expensive, and publishing doesn't pay very well.
8. How can I earn money during retirement? Exotic dancing probably won't be an option for me by then, but I could probably do freelance consulting work within the publishing industry.
9. How can I retain control of my financial life? I'm not quite sure what this question means! It makes it sound like some nefarious villain is trying to seize control of my financial life. I think I'm ok on this one.
10. What if I have money leftover when I die? I'll leave it to my niece and nephew.

JLP posted a follow-up with his alternate list of questions:

1. How much will I need to live on during retirement? See above.
2. Have I factored in what effects of inflation will have on my retirement income? Whenever I run the little retirement calculator in Quicken, I put 3 or 4% in the inflation box.
3. How much do I currently have saved toward retirement? About $135,000 of my net worth is specifically saved for retirement.
4. How should I invest my savings in order to meet my retirement goals? (This is an asset allocation question) See above.
5. Do I plan to work during retirement? If so, what will I do and how much can I realistically earn? See above-- I think I'd enjoy working part time in retirement.
6. What effect will taxes have on my retirement income? Am I or should I be utilizing a Roth IRA? I do have a ROTH IRA but I don't know what my tax rate will be when I retire.
7. What threatens my retirement plans? Am I allowed to say George W. Bush?

Obviously retirement planning is a complex issue, and some of the variables are unpredictable. I think I have some of the basics covered, but I need to learn more about the tax issues, and make sure I really have my retirement portfolio balanced properly to make the most of its potential returns.
There are a couple of other books about retirement that I am planning to read and review soon:

If anyone else has any recommendations for books about retirement planning, please let me know!


Nina Smith said...

One of my favorites is:

The New Retirementality
By Mitch Anthony

Sitting Pretty

Caitlin said...

some of those books look quite interesting...I hope you do a MadameX review :)

Have you poked at the Ballpark Estimate calculator yet? It's no silver bullet, and makes you guess at things just like this set of questions...but it puts some numbers and math behind most of these questions.

Basically it gave me a "clue" ;)

Anonymous said...