The 4 Numbers Every Retiree Should Know

If you ask yourself these tough questions now, you'll make things easier on yourself down the road

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The 4 Numbers Every Retiree Should Know

#3: How much do your other investments need to earn to meet your retirement expenses?

iStock 000007571207XSmall e1288034681829 The 4 Numbers Every Retiree Should KnowTake your expense estimate from Question 1 and subtract the after-tax Social Security payout from Question 2. Also subtract any other fixed-income streams you expect, such as from a traditional pension or a trust. The amount left over is what you’ll need to generate from your investment portfolio.

This number is critical because it will determine what kind of returns you need to generate … and what kind of risk you can take.

For example: Let’s say you need $100,000 per year to maintain your lifestyle in retirement and that Social Security is on the hook to pay you $50,000. After taxes, that $50,000 becomes $36,000 … meaning you’ll need your portfolio to throw off $64,000 in after-tax income. On a $1.5 million portfolio, that amounts to a return of 4.3% after tax, or a little less than 6% before tax (for now, I’ll assume all investment income is subject to the same 28% tax rate).

Is that a realistic figure for you? If not, you might need to downsize your retirement goals or postpone retirement for a few more years to build a bigger nest egg.

Be honest with yourself here. It’s better to make any hard decisions today while you can still make changes than in retirement when it is too late.


Article printed from InvestorPlace Media, http://investorplace.com/2013/07/the-4-numbers-everyone-planning-for-retirement-should-know/.

©2014 InvestorPlace Media, LLC

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