“Can I retire yet?” Those of us born in the later stages of the baby boom — usually defined as the years 1946-1964 — will find this one of the most difficult and important questions of our later years. According to the Employee Benefit Research Institute, today only about 15 percent of private-sector workers have a pension that guarantees a steady payout during retirement. The disappearance of defined-benefit pensions and the erosion of the Social Security system makes our retirements far less certain than those many of our parents enjoy.
The sums involved when evaluating retirement issues can be shocking. Personal finance writers are riding a reactionary wave with the theme “You don’t need a million dollars to retire!” That claim sells books to the hopeful, and can be a healthy antidote to the fear and conservatism sometimes spread by the financial services industry. Banks, brokers, and financial advisers would have you working harder and saving longer for their own purposes. If you take their most conservative advice, you’ll often find that a sum of several million dollars is required to retire comfortably.
So, do you need millions to retire, or not? What is the truth between the extremes? My purpose here is not to hype and sell magic formulas, secret shortcuts, or precise answers. Truth is, if you’re looking for an easy answer, there isn’t one. But if you’ll stick with me, you’ll understand the question better, and you’ll have a starting point for finding your own answer….
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- Assess your monthly living expenses, and understand roughly what it costs you to live in the lifestyle you choose.
- Understand the safe withdrawal rate concept, plus its limitations, for living off a lump sum without running out.
- Assess your Social Security or other pension benefits and understand the realistic threats to Social Security and pensions.
- Evaluate your options for reducing expenses and increasing income now, and in retirement.
- Identify and prepare for some enjoyable part-time work in retirement.