How to determine if you can afford to retireAre you retirement ready? Vanguard retirement expert Maria Bruno and Christine Benz of Morningstar discuss how investors can determine if they can afford to retire. 

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Notes:
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.
Amy Chain: What would be the right way to assess one’s readiness for retirement or is your portfolio ready? I’ll just sort of throw that one out and maybe, Maria, jump in and let us know how Vanguard’s position on talking to clients for that.

Maria Bruno: Yes, I mean oftentimes it’s, “Well, what’s my number?” And it’s no one magic number because every individual situation is different. But I mean you have to start in terms of, especially if you’re married and your spouse, and you really need to think through, “Well, what does retirement mean?” Because sometimes there’s a disconnect between spouses. One may want to retire early, the other may want to work part-time. So really think through what your vision is, what your goal is, and then really start to then work through the numbers in terms of, alright, what have you accumulated? What are your income sources? Is that enough? You really can’t go into that exercise until you really fully understand what that is going to look like and maybe to do some sensitivity around that in terms of, well, what if we wanted to do this or what if costs are more expensive or maybe we want to do more travel or whatnot? So really go through that exercise. It’s a budgeting exercise. It’s going through the balance sheet and getting a sense there. The time to do that is not when you’re going to retire. I mean, certainly, sometimes retirement is unexpected due to work reasons, for instance, or health reasons. But do the best that you can to plan in advance in terms of do I have enough and get a sense of whether that’s achievable. That will give you a sense in terms of, no, I still need to work and I still need to maybe maximize my 401(k) contributions or my IRA contributions. So go into that savings mode. And that’s a time to get help. I mean, I worked with clients over the years, and it’s usually that trigger point in terms of I’m thinking about retirement. Can I? What are the things I need to think about? And that can be a validation exercise or it can be actually working with an advisor throughout that transition phase. It depends.

Christine Benz: I would add a couple of things, too, Maria. I think the lifestyle considerations are huge. So in addition to whether you want to travel, also think about, “Well, is downsizing something that is on our radar? Is that something that we’re open to?” That’s a really big-ticket thing that retirees can do or pre-retirees do to help improve the viability of their plans. If they’re willing to move to a smaller home, they may have smaller maintenance expenses, smaller tax bills. Working longer, I can’t emphasize enough the value of continuing to bring some income in during retirement that can be very complementary to a retirement plan. So think about what your lifestyle in retirement will look like. And, as Maria said, go through that modeling exercise. Look at those income sources. Look at what you might expect from a pension, if you’re lucky enough to have one. Use the Social Security website to see what your benefits will look like under various retirement ages. And then with your portfolio, run it through some of those basic stress tests. Use 4% as a guideline and see, well is 4% of my portfolio combined with Social Security and a pension enough to give us the lifestyle that we’re hoping to have in retirement?

Maria Bruno: And it’s not once and done. You really need to go back and revisit that financial plan and validate the goals and are you on track or not or may fine tune this along the way. And I think the more you do that, the more you can actually enjoy retirement and feel more confident that you’re meeting your goals.

Amy Chain: How often should investors be revisiting that plan?

Maria Bruno: Well, in terms of revisiting the plan, I mean, there’s a couple of things. One, would be I would suggest every few years to just go back and say, “Hey, are we on track?” I mean there’s certainly portfolio management decisions in terms of rebalancing your portfolio to make sure that the risk profile matches what your goals are. And also, potentially, depending upon your goals, you might want to change that asset allocation. So every few years is really a good exercise, at a minimum, to go through and just do the financials again.

Notes:
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
  • This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.