February 5, 2021
Retirement – How much do you need to save?
Retirement experts have offered various rules of thumb about how much you need to save: somewhere near $1 million, 80% to 90% of your annual pre-retirement income, 12 times your pre-retirement salary. But what is right for you? And how do you know you are on track?
The keys questions are:
How much are you going to spend? In many cases, your expenses will go down as you will not be commuting (remember that?), contributing to a retirement fund, paying into Social Security (unless you have a part-time job), and other costs will likely go down as well. On the other hand, some other costs are likely to go up, such as travel expenses.
How much will you earn on savings and part-time work, if any? Depending on your tolerance for risk, the amount you should expect to earn on your savings will vary greatly. According to AARP, historically, the stock market has returned an average of 10.3% per year, while the bond market has returned an average of 5.3%. How your savings are weighted in a portfolio will help you estimate your earnings rate.
How long will you live? You want to make sure your money will last as long as you are alive, so this number is critical. On average, a 65 year-old man and woman have a life expectancy of 18 years and 20.5 years, respectively. You may also be advised to add some cushion to your estimate, to be conservative.
How much can you withdraw from savings every year? Your savings are not just for earnings but also there to allow you to withdraw a certain amount of principal every year. Per the AARP article (linked above), a conservative rule of thumb would be to take 4% of savings in the first year and take that amount plus the rate of inflation each year. Delaying retirement or having part-time work can significantly extend retirement savings. That should be taken into consideration in your planning.
If you or a loved one are looking to increase retirement savings, you may be able to sell your life insurance policy in a life settlement to add to your retirement nest egg. A life settlement transaction is a powerful tool that allows life insurance policy holders to sell a life insurance policy for cash, which can be used however needed! In addition to the cash upfront, you no longer need to make future premium payments, helping you reduce your expenses. Life settlements are a regulated transaction, so make sure you are working with a life settlement provider or broker who is licensed in your state. At Q Life Settlements, we help guide you through the life settlement process.
Author: Steven Shapiro
Steven Shapiro is the founder of the Company and also the President and CEO of Q Capital Strategies, LLC and Life Settlement Solutions LLC. Steven has been active in the life settlement industry for the last 18 years. In addition to his life settlement experience, Steven has expertise in strategic consulting, investment banking advisory services, and private equity investing. Steven holds a B.A. degree in economics from the University of Pennsylvania and an M.B.A. in finance and entrepreneurial management from The Wharton School of the University of Pennsylvania. Steven is also the immediate past Chair of LISA (having previously served as Chair), the Life Insurance Settlement Association, the oldest and largest trade organization in the life settlement industry.