BERLIN – As you think about your retirement, chances are you’ve come across some of the standard estimates of how much retirees need in order to live comfortably. Some experts focus on targeting a retirement income goal equal to 60 to 80 percent of pre-retirement income.
Others cite anywhere from $1 million to $10 million, and suggest the retiree live off just 4 percent to 5 percent of those assets each year. Many experts’ estimates have little regard for individual lifestyles or the goals people want to achieve in retirement. Such one-dimensional projections can be misleading.
“I don’t know too many investors with a $1 million nest egg who want to live their golden years on $40,000 to $50,000 a year plus whatever Social Security and pensions they receive,” said Steve Mitchell, director of Planning and Education for Merrill Lynch Retirement Group.
However, blending in some income from work in retirement can change the whole financial picture. Indeed, most of us are leading longer, healthier lives. We’re much more likely to see retirement as a time to blend work and relaxation: traveling the world, returning to school, starting a company, exploring fulfilling work on a part-time or cyclical basis, all combined with enjoying leisure to its fullest.
Whatever your plans for life after work, having the freedom to pursue them while meeting your living expenses requires an investment approach that isn’t based on a one-size-fits-all calculation. Fortunately, adopting a moderately aggressive and diverse investment strategy early in retirement can help you realize your goals.
The old model of stopping work abruptly at 65 is gone. Merrill Lynch research shows that 71 percent of pre-retirees plan to ease into retirement by working part time, consulting or starting a small business.
“If someone expects to completely retire at age 65, meaning they will never work again and will have all their health care and long-term care needs covered, they will require a sizable portfolio, and probably a significant pension as well,” says Mitchell.
The conventional wisdom that retirement is a time for highly cautious investing has changed. However, says Mitchell, “If you expect to have a 15-to-25-year retirement, you have a fairly long investment horizon.” Fixed income investments such as bonds or annuities can give you a stable source of income, but it’s also important to keep equities in your asset mix to give your portfolio the chance to keep growing. Over a long retirement, it’s critical that growth keep pace with inflation to reduce your risk of outliving your assets.
Chances are you’ve worked for more than one company — and had several 401(k) plans in your lifetime. While some of them may be working hard for you and yielding a solid return, others may be suboptimal and even accumulating unnecessary fees. To get more control over your retirement assets, consider rolling all your 401(k) funds into an IRA. This will give you greater flexibility and control over your retirement investments and make it easier to implement and maintain a comprehensive overall investment strategy.
While an inheritance can significantly bolster your retirement savings, you shouldn’t rely on an inheritance as a core part of your retirement plan.
Financial freedom does not come in a one-size-fits-all financial strategy for most of us. But you can create the retirement you want with a smart plan. Work with your financial advisor to devise an investment strategy that makes sense for you.
(The writer is a Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-9084.)