I recently read an article that said retirees need 70% or more of their pre-retirement income to feel confident and enjoy their retirement years. Unfortunately, only about 25% of Americans are at that level, and many see a decline in their standard of living in retirement.
What can you do to better your situation if you fall into that 75% group? Maybe you’re still working and saving, or you’re already in retirement and need a little help. I’m here to provide some answers and solutions for you.
Before I talk about potential opportunities for you, I want to recap a study from Goldman Sachs. This study suggested that the benchmark for your retirement income should be 70% of your pre-retirement income. If you made $10,000 a month while working, you want to earn at least $7,000 a month in retirement. I would argue that the number could be even higher. In this study of 1,566 families, only 25% exceeded that 75% benchmark. The Gen-Xers, the generation right after the baby boomers, are hurting the most. As people are living longer, they may not be getting inheritances, and they’re paying for health care longer.
A few weeks ago, we talked about the 4% rule. The idea of the 4% rule is that when you retire, you have your portfolio set up to allow you to withdraw 4% a year. An article from JP Morgan pointed out that even multimillionaires run out of money.
Let’s say you retire at age sixty, with $30 million, and you follow the 4% rule. This JP Morgan article says that you will run out of money about 78% of the time. If I had $30 million, I could probably figure out a way not to run out of money. I think many people run out of money because they don’t like annuities; they build a balanced portfolio and hope and pray that the market cooperates.
Now, let’s get to the opportunity. Interest rates have risen, and we are at a stage where if you use the right combination of annuities and market investments, you can have a 5% guaranteed lifetime income. How would that feel? JP Morgan says that instead of 4%, you should be taking only 2-3%. Morningstar also came to that conclusion. If you had a million dollars, that’s $30,000 a year.
Meanwhile, every day in our office, we help people set up their accounts, using a combination of market investments and annuities. If you had a million dollars, you would receive closer to $50,000 a year for life instead of $30,000. That extra $20,000 is a difference that can help you get closer to the 70% income threshold. Why doesn’t JP Morgan talk about that? In my opinion, they don’t make money on annuities.
I have a pet peeve about cart etiquette at grocery stores. The other day, I was grocery shopping for my wife and as I walked in, the person in front of me saw a cart left out. This person grabbed that cart and used it to shop. That’s an example of good cart etiquette.
I also saw an example of bad cart etiquette; it drives me crazy. I saw a person finish loading up their minivan, and instead of pushing the cart to a cart corral three cars away, this person pushed the cart in front of their car and then backed their car out, leaving the cart there.
Maybe returning your cart doesn’t benefit you, but it’s still the right thing to do. That situation is similar to what JP Morgan and other big firms are doing. Most big firms don’t benefit from annuities. An advisor should help their client set up a combination of annuities with other options to aim to get the most guaranteed income in retirement and live their best retirement life. The adviser you talk to is so important.
If your advisor works for one of these big companies, they might be limited to what they can do for you. Metaphorically, they are more likely to be unwilling to move a shopping cart three cars over. Talk to an adviser who will do anything for you and who makes sure you’re set up the right way. They can help you look at every option and make educated choices, so you are more prepared for retirement.
We put together a personalized Retire Right Report to help you do that. If you’ve saved at least $500,000 for retirement, it’s free and there’s no obligation. Do not miss out on this opportunity. This report creates a baseline for you, helps you understand where you are with your planning now, and highlights what you could do to improve your situation. Let’s help you retire. Our number is 512-886-5850. We want you to be part of the 25% of retirees, who wake up in the morning and don’t have to worry about money. We believe you deserve to focus on being happy each day in retirement.
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