Can You Afford to Live Comfortably in Fresno During Retirement?

November 25, 2022

By Soutas Financial

How much money do you need to retire? And is it enough? According to Schwab Retirement Plan Services, the average participant in a 401(k) plan thinks they’ll need $1.7 million to do so. Roughly half of those surveyed believe they will be able to meet their financial goals. The amount you need to save for retirement depends on how much you will need. To get an idea of how much money you’ll need, you need to first determine how much you’ll spend on your retirement.

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Retirement expenses

There are no precise guidelines for estimating retirement expenses. Even if you’ve identified which categories of expenses are likely to decrease after you retire, you’re still likely to be off by a lot. The rule of thumb is that you’ll need to spend 80% of the amount you’ve invested in order to retire. Commuting and retirement-plan contributions are among the more significant costs that occur after you retire. Of course, other demands may rise (such as vacationing).

Many retirees say that in the early years, their expenses can match or even exceed those during work. This is especially true for retirees who have more time to spend money.

Thus, the expenses of retirees usually undergo the following three phases:

In both the early and the final stages of retirement, seniors spend the most money.

The quality of life is rated on a scale of 1 to 10, with 10 being the highest standard

Since you are nearing retirement, you are more likely to have a good idea of how much money you will need to maintain your current lifestyle—or support a new one—in the future.

Subtract any expenses you expect will go away after you retire and add any new ones. That will give you at least a ballpark figure to work with.

When it comes to planning for finances, don’t forget to count in any big bills or major cost-saving efforts, too. For example, if you plan to downsize and move to a cheaper home.

How Much Do I Need to Retire in Fresno?

Financial advisors typically recommend a sustainable withdrawal rate of around 4% as a starting point.

The amount of money you could withdraw from your portfolio and still expect it to last at least 30 years, according to most financial experts.3 The majority of today’s experts believe that a 4% withdrawal rate is ideal, although there are exceptions.

Using the 4% rule, this is how much one might withdraw annually from three different nest eggs:

To estimate how much money you’ll need in retirement, divide your anticipated monthly expenses by 4. Therefore, if you think you’ll need $50,000 a year to live comfortably in retirement, you’ll need $1,250,000 ( $50,000 ÷ 0.04).

Financial security after retirement

Now that you have a rough idea of the costs of your retirement, the next step is to see whether your income will cover them. To do so, add up how much income you expect to receive from the following three sources:

Social Security Retirement

To get an idea of your future Social Security retirement benefits, use the Social Security Retirement Estimator. If you’ve been working and paying into the system for at least 10 years and have accumulated 40 credits, your projections are likely to be pretty accurate. As you near retirement, the estimate will be more accurate.

Each month you receive, the less you’ll get if you take your benefits early. You may take your retirement benefits as early as age 62 or as late as age 70, after which there is no further incentive for waiting since you will receive the full amount regardless of your age.5

The June 2020 monthly Social Security retirement benefit was $1,514.6 The amount you can receive depends on when you start collecting benefits.

The benefit for each month in 2022 will be:

The amount of monthly benefits is as follows for the 2023 tax year:

A plan that pays an assured monthly benefit to employees, regardless of their length of service

When your pension payments are scheduled to arrive, the benefit manager of the plan can supply you with an estimate of how much you’ll receive.

It is wise to consider how your income might change if you were to receive survivor benefits in form of a joint and survivor annuity, which continue to provide a specified percentage of your benefits to your spouse if you die first.

The amount of money you put aside for your retirement

401(k)s, IRAs, health savings accounts (HSAs), and other retirement accounts are all included in your retirement savings.

You must start taking required minimum distributions from a traditional IRA or 401(k) at age 72 if you have one. You don’t have to take any RMDs from a Roth IRA (although Roth 401(k)s do). At age 72, the monthly income you receive from those accounts will be determined by the RMDs that you’ve already taken. You may, however, start withdrawing funds from an IRA or 401(k) as early as age 59½ without penalty.

How to measure your personal success

In other words, if your retirement income totals up to more than what you predicted would be necessary, you probably have enough. However, you might want to increase your savings.

If you think you’ll fall short, you may need to make modifications or increase your income or reduce your expenses, depending on the situation. For example:

The more time you’ll have to work the numbers in your favor, the sooner you should do the math.

Saving vs. Investing

Saving often results in lower retirement account balances and investment returns than investing. When you need money or an emergency arises, your money is available and has a low chance of losing value—as well as small potential gains.

Investing, on the other hand, is performed with long-term objectives in mind. When investing money, you can expect higher future returns, but with more risk. Your risk tolerance and time horizon are key factors in determining the right balance of risk and reward.

How Much Is Enough?

It’s good to have a dollar amount as your long-term savings goal, but focusing on how much you should sock away each year is helpful.

Schwab advocates saving 10% to 15% of your income throughout your life to ensure a comfortable retirement.12 Here’s how certain retiree scenarios might play out.

People who save at least 5% of their salaries for retirement have an 85% chance of reaching age 90, according to research by the Employee Retirement System of Texas. Paraphrase: 85% chance of reaching age 90

Beth, a 30-year-old, receives $40,000 a year and is expecting 3.8% increases until retirement at age 67. In addition to stock and bond mutual funds, Beth expects to receive 6% annual returns on her retirement contributions.

By saving 5% throughout her working life, Beth will have amassed $423,754 by age 67. However, since she will still require 85% of her pre-retirement income once she retires, her 5% retirement savings are likely to fall short.

At age 67, Beth needs $1.3 million to match her pre-retirement income. Because a 5% savings rate doesn’t produce even half of what she’ll need in retirement, her savings of $50,000 won’t cut it.

15% and 10% Savings Rates

In order to arrive at the $847,528 at age 67 that Beth can expect to save at a 10% rate, assume that she is paid $1.3 million, her projected needs stay the same at $1.3 million, and that she wants to save $1 million. Then, keeping the three assumptions above, the required savings amount is $847,528. Even at a 10% savings rate, Beth will not accumulate the desired amount.

Beth can fund her retirement if she increases her savings rate to 15%. Using anticipated Social Security, she can reach $1.3 million.

Are individuals who do not save 15% doomed to a substandard retirement? No, not necessarily.

The phrase ‘conservative assumptions’ is synonymous with ‘presumptive reasoning’

We have made some assumptions about the future. The investment returns might be higher than 6% annually, and Beth might live in a neighborhood with a low cost of living. She might need less than 85% of her prior salary, or she might decide to work until age 70. Her salary might increase by more than 3.8% annually.

In the best-case scenario, Beth could save less than 15% and have a sufficient nest egg for retirement, thanks to all of these optimistic possibilities.

What if the assumptions are too optimistic? What if Social Security payments are lower than they are now? Or what if Beth’s financial trajectory is positive? In a 2019 Schwab study, a quarter of the participants took out a loan from their 401(k) with most of them taking out more than one.13

Even if Beth saves 15% of her income, she might still have to live on 85% of her previous income in order to have a comfortable retirement if she lives in one of the five high-cost-of-living cities of California, Chicago, Los Angeles, New York, or Seattle.

Finding Out What You Want To Do What You Need To Do In Life

It’s important to plan for extra savings or income streams from now on to make up for the shortfall if you’ve reached mid-career without saving as much as these numbers say you should have.

You may wish to retire to a location with a lower cost of living so that your money lasts longer. You may also anticipate to work longer, which would increase your Social Security benefits, as well as your earnings. Remember, your Social Security benefit will be higher if you wait until your full retirement age to collect it, and it will be even higher if you delay until age 70.

Finding an exact figure for your retirement nest egg goal can be accomplished using the provided guidelines. Some financial advisors suggest saving 12 times one’s annual salary at retirement. For example, a 66-year-old earning $100,000 would require $1.2 million at the end of their careers if they adhered to this recommendation. Since the future is unknown, there is no prefect retirement savings target or percentage.

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Retirement planning isn’t something you do before you stop working. Rather, it is a lifelong process.Throughout your working life, you will go through a series of phases as you evaluate your progress and targets and make decisions to reach them.

It’s difficult to determine how much money you will need in retirement and to plan for it. However, it is critical to be prepared. You can’t predict how much income you will require, but it’s preferable to be overprepared than to wing it.

Your Fresno Financial Advisor Takeaways

Soutas Financial in Fresno wants to remind you of the following points. Approximately half of the people surveyed by Schwab Retirement Plan Services believe they can meet their retirement goals.1 When investing, many Americans aren’t accumulating enough money—and the funds they do collect are insufficient to cover their retirement needs. In order to understand how much of your retirement cost you’ll need, you have to first calculate your retirement expenses. Investing, on the other hand, is performed with long-term objectives in mind. When investing money, you can expect higher future returns, but with more risk. Your risk tolerance and time horizon are key factors in determining the right balance of risk and reward.

We Can Assist You

Are you trying to find a financial advisor in California? Look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planner is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies IRA, 401(k) & 403(b) Rollovers, Life Insurance, Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family.

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!

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Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
(559) 230-1648