Many high earners feel a false sense of security regarding retiring due to the fact they earn a good living with high disposable income and live well.
Let's make an assumption that being a "high earner" is all relative as well as largely determined by what part of nation we live in. Whether we are a high earner in Brand new York City with web after-tax of $1 million or $250,000 in a low-cost area is immaterial; the point is the fact that pre-retirees should take a look at their personal balance sheet to ascertain the sustainability of their lifestyle during retirement -- especially for those who have lived at or perhaps above their means for their entire lives. Everything's fine until you get that final paycheck as well as face the next 30 many years of retirement.
Take for example a 60-year-old with web earnings of $250,000 per year. Assume this individual spends all of those after-tax earnings or money flow every year.
If this person has saved $1 million for retirement, it is very simple math that $250,000 per year is definitely not a sustainable retirement invest. Doing a very quick, back-of-the envelope calculation yields a projected sustainable invest of $80,568 per year. (I assumed a 30-year retirement as well as 7% portfolio return and assumed all funds have been exhausted by the end of year 30. This ignores inflation, market volatility, timing of marketplace returns, Social Security as well as income taxes but does highlight the spending disconnect.)
High earners in their 50s and 60s want to lay the groundwork to bridge their current spending habits to what is sustainable during retirement. The first step is to get serious about creating an accurate income. Next they should see their spending levels through the lens of their retirement savings. If the savings represent a mere 1 to 2 times your spending levels, you've got some serious work to do! If your solution is "Oh I'll just keep working," there are two important things to remember: older workers cost more, so they are on the firing line in a downsizing; and your own health may not allow it.
Older high earners can stay in denial regarding the situation till they retire due to the fact they have the income to support their lifestyle. When they get that final paycheck, reality will soon set in. Don't allow yourself be caught off guard.
View the original article here
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment