2 More Years for a Better Retirement
The Motley Fool, June 12th, 2007
When I've written before about our collective need to save more for retirement, I've often cited my favorite retirement resource: our Rule Your Retirement
newsletter service. In its pages, Robert Brokamp has explained that in
order to make your nest egg last, you should conservatively plan to
withdraw about 4% of it per year in retirement for living expenses. If
you end up with a $1 million nest egg upon retirement, you'd withdraw
$40,000 in the first year to live on.
That might sound not so bad, but many of us can't count on that $1
million yet. If you've got only $150,000 socked away, and you're eight
years from retirement, you'll have to earn an annual average of 27% on
your money to hit a million in time. That's nowhere near a reasonable
amount to expect. Even the market's historical average annual gain of
around 10% is far from a sure thing. Over the coming eight years, you
might well average 12% -- or 7%. Yikes.
A modest proposal
Are you stuck, then? Not
necessarily -- there are always things you can do to improve your
position. For starters, note that my example above begins with a static
$150,000 and adds nothing. Over your coming eight years, you can always
keep adding to your nest egg.
Better still, consider this suggestion: Work a little longer. Not a
decade longer (unless you really love your work and can't think of
anything else to do), but just a few more years. Remember how, with my
initial example, you'd need to earn an annual average of 27%? Well, if
you stretch your retirement to 10 years in the future, instead of
eight, you'd need to grow your nest egg by just 21% annually. Make it
12 years away, and you'd need to earn around 17.5%. That's still too
much to expect automatically, but it's a lot more reasonable.
Read more of this article.