What’s Right For Your Retirement?
Planning for retirement can be a daunting and confusing task. Even with expert advice, there is not often a consensus on how much to save and where you should be invested. But even in the most challenging financial environments, there are aspects over which you have control. We are all familiar with the volatility of the stock market and recognize we have no control over the ups and the downs, but you can control your asset allocation.
Your retirement account is a long-term investment. Balancing the need to grow your account over the years with a level of risk and volatility that you are comfortable with requires careful consideration. Finding the right mix and asset allocation model that is right for you is vital. Asset allocation is part of an investment strategy that can help balance risk and reward by apportioning a portfolio’s assets according to individual goals. The three main asset classes – stocks, bonds, and cash equivalents – have different levels of risk and return, so each will behave differently over time. Examples of investor asset allocation models include:
Your contribution rate for your retirement savings is another key decision. In the past, conventional wisdom indicated that saving 10% of your annual income for retirement should be an adequate amount to retire with. However, today’s experts recommend you save closer to 15% (or more) of your annual income in your retirement account, including your salary deferral and any employer contributions. Keep in mind the 15% is a good starting point for people who have many years before retirement, but those nearing retirement will have to carefully calculate where they stand and what their goals are.
So how much will you really need to retire? It depends, but one target that will guide you in the right direction is to consider what percentage of your pre-retirement salary you would like to maintain during those golden years. Experts suggest you will need between 70-100% of your pre-retirement annual income in retirement. If you are trying to determine a lump sum, you will want to take into consideration your anticipated withdrawal rate. There are several recommendations, but one way to determine the lump sum you may need is to calculate the amount you’ll need to draw from your personal savings during your first year of retirement and multiply by 25 (the approximate number of years you will spend in retirement). This will give you the size of the nest egg that you will need to replace 100% of your pre-retirement income. A more conservative recommendation uses 12.5 times your first year withdrawal. In reality you will probably land somewhere in between.
Securing your retirement is far from simple; the earlier to begin planning the better off you’ll be. Stay informed, continue to make your contributions and keep your investments well diversified. For more information, call Union Bank’s Retirement Plan Services at 402-323-1592 or 888-769-2362.
The information and any statistical data contained herein is not intended to be investment advice. Contact a financial advisor for specific advice for your individual situation.
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