Have you saved enough for retirement?
When do you plan to claim Social Security? Do you have a plan for drawing down assets in retirement?
In the latest Retirement Report, WSJ Wealth Adviser’s Anne Tergesen takes a look three big questions to check on before stepping away from the workforce.
If you aren’t sure what you might spend, use the 80% rule. It assumes that retirees can get by on about 80% of what they earned while working because they no longer need to commute or save for retirement and frequently wind up in a lower tax bracket. Using the rule, a couple with a $100,000 annual income would need a retirement income of $80,000.
The next step is to deduct from that $80,000 your expected Social Security and pension benefits, plus guaranteed income from any annuities you have. If you are entitled to $35,000 a year in Social Security but nothing from a pension or annuity, for example, you would need savings to supply the remaining $45,000.
Wade Pfau, a professor of retirement income at the American College of Financial Services in Bryn Mawr, Pa., suggests dividing that $45,000 by 4%, which represents the 4% “safe” inflation-adjusted withdrawal rate that historically has ensured U.S. retirees a high probability of never running out of money. The result, $1.125 million, is the amount you will need. (With stocks at records and bond yields low, Mr. Pfau says it may be safer to use a 3% withdrawal rate.)
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