6 Ways to Measure If Your Retirement Plan
is on Track

by John R. Stewart, Senior Financial Advisor/Portfolio Manager | June 15, 2022

Did you know?

• 46% of workers surveyed said they don’t feel confident about affording medical expenses in retirement.
• Retirees are concerned about the low returns on saving accounts, CDs, bonds and bond funds.
• Only 41% of workers surveyed have tried to figure out how much they’ll need in retirement.

6 ways to measure if your retirement plan is on track:

1. Total up your asset
   You can’t project what you’ll need without knowing what you have. Most can’t rattle off what they have stashed, or where. Many have multiple accounts—particularly if married—such as IRAs, 401(k)s left with former employers, savings accounts, maybe mutual funds in scattered brokerage accounts. Round everything up. Add them together. Compute your total, separating out sub-totals for stocks, mutual funds, bonds, annuities, cash (including CDs and money-market funds and other securities. Own your home? Set the value aside as it isn’t liquid.
2. Determine what you’ll need annually
   Don’t use rules of thumb like “Plan on needing 70%-80% of your current income”. That myth comes from presuming those retired slow down and spend less. Few do. Some travel, adopt hobbies and finance grandchildren.  Almost all spend unexpected sums on medical items not covered by health insurance.List all your current expenses, separating them into “basic” and “discretionary” buckets. Food, shelter and utilities are basic. Hobbies and entertainment aren’t. Start bucket three: new expenses you’ll likely incur during retirement, like trips to see the grandkids and those health-comfort costs. Then use an online inflation calculator to total what it all costs when you plan to retire. (this one is good https://www.calculator.net/inflation-calculator.html  . If you totaled $75,000 “2018” dollars and want to retire in 20 years, you’ll likely need more than $135,000 annually, minus Social Security and any employer pension plans you have.
3. Project
   How much savings you will you need? To minimize the risk of running out of money, annual withdrawals shouldn’t top 4-5% of your portfolio’s value upon retirement (the dollar amount can rise with inflation afterward). If you’ll need $100,000 annually from your assets, grab your calculator and divide $100,000 by .04 (4%). That totals a whopping $2.5-million. Few have anywhere near that saved. But that’s OK! Saving more and investing reasonably works wonders over time.
4. Figure out your needed savings rate
   If you need $2.5-million and only have $100,000 saved, saving $30,000 a year invested in historical stock market returns for 20 years puts you near your goal. How do you figure? A marvelous tool called an investment calculator. I used Bankrate’s https://www.bankrate.com/calculators/savings/compound-savings-calculator-tool.aspx
   Enter your starting value, years to retirement, estimated investment returns and estimated annual savings. Saving $30,000 isn’t easy, but it’s more doable than you think. If you max out your 401(k) and IRA contributions first, your nearly there—at $24,000 ($18,500 for 401(k) and $5,500 for IRA). An employer match may fully fill your shortfall.
5. Play with it all
   Entering different investment returns in you calculator helps to show if you have the best mix of stocks, bonds, etc. Usually you’ll find you need more stocks long term than ever suspected. That’s OK. Stocks are less risky than bonds over the long haul. To be ultra safe, you might lower your expectations from stocks from historical averages. That forces you to lower your future expenses, own more stocks or work longer. Maybe all three. Feel discouraged? Then….
6. Live longer, compound longer
   You’ll likely live longer than you think. Compound growth is miraculous. Even delaying retirement from 65 to 70 as more and more Baby Boomers are, makes a huge difference. Our $30,000 annual savings example and 10% investment returns for 25 years instead of 20 has the retirement portfolio leave to over $4-million. That’s 1.5-million more in five years! So keep your chin up, save and redo these six steps every few years until you feel better.

This article represents the opinion of John R. Stewart as of June 15, 2022. John R. Stewart is an investment advisor representative with Physicians Wealth Solutions, LLC, a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risks and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discusses herein.