Madeline A. from Ithaca, NY asks: Hello Mitch, I’m curious how a person can know whether they have enough money to retire. I thought I did, but then with inflation going up and the market going down, I’m not so sure anymore. Does Zacks Investment Management have certain tools or calculations they use to determine retirement readiness?
Mitch’s Response:
Thanks for writing. You’re asking the right type of question in an inflationary environment when the stock market is also choppy. A solid retirement plan would account for the possibility of both of these conditions.
The most efficient way to determine whether you have enough money to retire is to run cash flow simulations, tested against a variety of different market conditions like high inflation and weak markets. The key is to understand how best-case – but mostly worst-case – scenarios affect your overall liquid net worth over your time horizon, which should span longer than you think. For instance, if you’re 60 years old, you should be running cash flow simulations until age 100, even if you’re sure you won’t live that long.
How Much Do You Need to Retire?
Are you planning for retirement and finding it difficult to get the job done? It is not an easy process, especially if you haven’t established your goals and determined your financial needs.
However, if you spend some time focusing on what you want your retirement to look like, you can formulate a plan that works for you! To help you do this, I am offering our exclusive guide that takes a look at important factors that I believe investors should consider when defining their financial needs in retirement.
This guide can help you answer key retirement planning questions including:
- What will be your retirement lifestyle? Will you travel or stay home?
- At what age do you plan to retire?
- What essential expenses will you have?
- What part will Social Security benefits play in your financial picture?
- Plus, many more factors you may want to consider to help you plan for a secure retirement
If you have $500,000 or more to invest, get our free guide, “How Much Exactly Do You Need to Retire1” today!
Cash flow simulations can help you understand whether your retirement nest egg has a formidable ‘moat’ against all kinds of market and economic curveballs, or if something like high inflation or consecutive years of weak market returns will deplete your savings on too short of a timeline. The results of the cash flow simulation can give you action items for whether you need to save more, adjust your asset allocation, or perhaps confirm that you’re in a strong position to retire.
Another very important consideration is how flexible you can be in your retirement years when it comes to cash flow. If your need for a certain level of cash flow is very rigid and cannot be changed, then your portfolio will likely suffer more during periods of high inflation and/or bear markets. This risk is called the “sequence of return risk,” which can be mitigated by trimming your withdrawals during weak market periods and then returning to normal when market conditions are stronger. Cash flow flexibility is a good tool to have in retirement.
At Zacks Investment Management, we address all of these questions and run various analyses to help clients determine where they stand. We also guide clients along the way to make sure they stay on track for their long-term goals. The bottom line ultimately is to make sure there is plenty of cushion in a retirement plan to account for the unexpected so that when it happens you can make adjustments but not worry about running out of money too early. There is no ‘magic number’ in retirement planning – the magic is in active management, asset allocation aligned with your long-term goals, and some flexibility along the way.
To help you plan your retirement, I am offering our exclusive guide, How Much Exactly Do You Need to Retire2, which takes a look at important factors that I believe investors should consider when defining their financial needs.
This guide can help you answer key retirement planning questions including:
- What will be your retirement lifestyle? Will you travel or stay home?
- At what age do you plan to retire?
- What essential expenses will you have?
- What part will Social Security benefits play in your financial picture?
- Plus, many more factors you may want to consider to help you plan for a secure retirement
If you have $500,000 or more to invest, get our free guide today!
Disclosure
1 ZIM may amend or rescind the guide “How Much Do You Need to Retire” for any reason and at ZIM’s discretion.
2 ZIM may amend or rescind the guide “How Much Do You Need to Retire” for any reason and at ZIM’s discretion.
DISCLOSURE
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