It is easy to be daunted by the need to save for retirement. For starters, your retirement savings plan requires setting goals, determining timelines for achieving them and the acceptance of investment risk, so that your invested retirement accounts may appreciate.
However, aiming to secure your retirement does not stop there. The next step of the process is to identify how much income your portfolio of assets can reasonably generate, year after year, when you stop working. How do you formulate an income distribution rate? Begin by considering this simple rule-of-thumb:
As Jennifer explains, most of us can plan for a sustainable 4% income generation rate throughout retirement. In straightforward terms, this means that if you save $1M dollars before you retire, you can anticipate taking $40,000 in income from this portfolio, year after year. If you set aside $3M dollars before you retire, you can anticipate drawing $120,000 in income from your assets annually.
You get the idea. Another way to approach your planning is to decide how much annual income you want upon retirement. If your “number” is $200,000/year, it is important to focus your retirement savings plan on the accumulation of about $5M dollars.
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