If you’re casually wondering if you’re on the right track for retirement, you can use some simple math to help determine how you’re doing. Normally, I’m not a fan of rules of thumb because so many variables are at play and retirement is so personalized. That said, this can give you some idea of what you’ll need for retirement income.

How to determine your income needs – Take an estimate of your total expenses and modify those for changes you expect in retirement (such as more travel, fewer commuting expenses, greater healthcare costs, etc.). After you get that total, subtract your estimated income from Social Security, pensions, and any other income streams you might receive. What’s left is the amount of income you’ll need from your investments.

Generally, we suggest taking no more than 4% per year from your investment balance as income. For example, if you need $40,000 per year to meet the balance of your income, then you’ll want to start retirement with at least $1 million of total investments.

What you can do if you don’t have enough saved – You have several options if your investment balance isn’t on track. First, you can spend less now or in retirement. Lowering the amount of income you need reduces the size of the investment portfolio required to meet those expenses.

Second, you can save more. If you increase your monthly or annual contributions to your investment accounts, you could have more available to help meet your income goals in retirement.

Third, you can look for ways to increase your net return on investment. This can be accomplished by reducing the fees on your investments, increasing the risk you’re taking, or by looking to improve upon the quality of the investments in your portfolio. If you’re able to increase your net return, you’re likely to see a larger investment base from which you can take income during retirement.

Contact us to discuss how we help our clients with retirement planning and portfolio optimization strategies.

The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual.  Consult your legal, tax, and/or financial advisor to determine what is appropriate for your situation.

Investing in stocks is subject to risk including possible loss of principal.

Increasing the risk on your investments could increase your potential for investment loss.

Taking a specific percentage as income from your portfolio does not eliminate the risk that your money could run out.

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Author Profile

Woody Derricks, CFP®
Woody Derricks, CFP®
Throughout my nearly 20 years as a Financial Advisor, I have seen some of the best and worst markets in our history. That experience allows me to approach my clients with the knowledge of how the markets fit into their greater financial picture. At Partnership Wealth Management we help everyday people who have accumulated wealth make sense of what they have and work with them to maximize their financial opportunities in a relaxed, comfortable, and professional environment. While we help people from all walks of life, many of our clients are same-sex couples searching for a knowledgeable, LGBT-friendly financial advisor to help them with their unique financial planning needs. I am a CERTIFIED FINANCIAL PLANNER™ professional and have the Accredited Domestic Partnership Advisor(sm) designation. As a Registered Investment Advisor, we are not tied to any company’s investment products allowing us to provide unbiased advice by offering a wide array of investments and other products to our clients. Since 2001, I have been writing articles on financial planning for several regional newspapers and have been a guest speaker on LGBT financial issues for various local and national organizations. Additionally, I have conducted financial planning workshops for large corporations and government agencies. Non-Profit Work I believe that it is important to give back to the community and currently serve as the treasurer for FreeState Justice and as a co-founder/president of Paws for a Cause. I’m a current member of several LBGT, environmental, and local community groups. Personal My wife, Heidi and I enjoy camping, hiking, and traveling with our daughter, Elise, and our dogs, Fenway & Roxy. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.