Real on Retirement

Real on Retirement

Being gay and retiring can be scary. You may have less family support and need more legal advice to protect yourself and the ones you love. One thing you will need is a big pile of gay money. How much pink money do you need to retire?

Most of the predictions are based on how much you make and not based on what you actually need in retirement. These methods leave the future retiree with a moving target on how much should be saved because the methods are based on income. The amount required for retirement moves around dramatically as to how much you should save when you get pay raises or a new job and make planning a nightmare. Worse yet, they have almost no attachment to reality, I know from personal experience what I make and what I spend varies greatly depending on what phase of life I am in (college, law school, new professional). I could only extrapolate that retirement will involve a different mix of earning and spending.

How is anyone to plan when what the formula is based on, income, changes through a lifetime? Looking at retirement goals based on income is a poor construction to answering a much easier question. A better method would use the yearly income you will need in retirement to sustain your lifestyle, and working toward the required nest egg. Then you can decide if you need more income or if you should cut spending to meet your goals.  While there is not a one size fits all number, however, there is a magical formula. Yearly Spending in Retirement times 20 = Retirement Nest Egg. With that Retirement Nest Egg  you will be able to reach your yearly retirement spending with a 4% withdraw rate.

This formula is magic because the Trinity Study looked at a 50/50 bond stock mix over all 30 year periods of the stock market and found on the worst occasion a 4% withdraw rate could be sustained year over year indefinitely.

So even if you live during the worst years in history you will still be safe with a 4% withdraw rate. The 4% withdraw rate is very conservative; I think retirement planning is the best time to be gay and conservative. The study conservatively considers that 50% of the holdings are bonds and no adjustments in withdraws or spending are done during a hard year. A retiree could always take a percent or so more on good years knowing that they will need to trim if bad times come. The study also is a shining example of why a diverse investment portfolio is important in retirement.

How close is your ideal retirement spending in line with what you plan on saving?  I made an excel sheet to play with and help figure out a true goal on retirement saving. Pension and Social Security can be added to reduce the total amount needed for a retirement nest egg.

Could you reduce your spending if it meant retiring sooner?

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