Saving for retirement is one of the most important parts of securing your financial future. While programs like Social Security can help, they are often not enough on their own. That is why it is crucial that you have your own pension savings. You may be wondering exactly how much money is enough; For example, could you survive on $800,000? Let’s see.
For more help with retirement planning, consider working with a financial advisor.
Determine pension costs
The first step to knowing how long your money will last is to calculate your living expenses:
Fixed charges
Fixed expenses are expenses that do not change from one month to the next. For example, you can think of rent or a mortgage, insurance premiums and utilities. Add up these expenses and see how much you spend monthly and annually.
Variable cost
Variable costs are expenses that are not the same every month. Many things can fall into this category, including travel expenses, healthcare costs, entertainment, and charitable donations. Because these expenses are variable, you’ll likely need to set a limit on how much you can spend on them each month. If you reach that limit, you’ll have to use money from elsewhere in your budget or forego the purchase.
Calculate retirement income
The next challenge is calculating retirement income. This can be more challenging than calculating your income while you work because you may have more sources of income. For example, your retirement income may consist of:
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Social Security
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Plan retirement
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Retirement savings
The good news is that Social Security and retirement benefits do not change from month to month. They may include an increase in the cost of living every year, but their relative stability makes planning around them easier. What can be more difficult to plan for is retirement savings, especially if you rely on investments. You can use SmartAsset’s free retirement calculator to see if you’re on track to reach your retirement goals.
Estimating the duration of the pension
Another challenge when planning your retirement is estimating the duration of your retirement. This is not an easy question to answer because many variables can affect life expectancy. However, estimating your life expectancy is an important part of your retirement planning. People are living longer than they used to, so it’s important to be prepared if you’ll be living for decades after retirement. Life expectancy in the United States is currently approximately 77 years.
In addition to life expectancy, you should also consider things like your current health and family history and how this will affect your life expectancy. Finally, you should use an inflation calculator to see how long your money will last.
Retirement portfolio styles
The next step is to determine your investment strategy. For example, your portfolio may be more on the conservative side, or more on the aggressive side. Here’s a quick look at what an $800,000 retirement portfolio could look like, depending on your strategy:
Conservative portfolio
With a conservative portfolio, your investments will consist mainly of relatively low-risk investments. For example, you may have:
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50% bonds ($400,000)
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30% cash ($240,000)
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20% shares ($160,000)
The goal of a conservative portfolio is generally to preserve wealth, not build wealth. So you can also focus on top dividend-paying stocks instead of growth stocks.
Balanced portfolio
A balanced portfolio may be suitable for retirees who want a mix of growth and income and are willing to accept some risk in exchange for higher returns. An example of your asset allocation could be:
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50% shares ($400,000)
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30% bonds ($240,000)
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20% cash ($160,000)
This portfolio includes a noticeably higher allocation to equities, and cash becomes the lowest percentage. A balanced portfolio often contains a mix of stocks, bonds and cash. It tends to focus on diversified investments that offer a mix of growth and income.
Aggressive portfolio
An aggressive portfolio may be suitable for retirees with a longer time horizon who are willing to accept higher risk in exchange for higher potential returns. If you have an aggressive retirement portfolio of $800,000, stocks become the focus of your portfolio:
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70% shares ($560,000)
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20% bonds ($160,000
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10% cash ($80,000)
An aggressive portfolio may include a mix of high-growth stocks and small-cap stocks. Some aggressive investors might venture into alternative investments, such as commodities or precious metals.
It’s important to note that these are just examples and the right investment strategy for your retirement portfolio will depend on your individual goals, risk tolerance and time horizon. It is always a good idea to consult a financial advisor before making any major investment decisions, especially when it comes to retirement planning.
In short
How long $800,000 will last after retirement depends on factors such as your expenses, retirement income and how long your retirement will last. If you have significant income from sources like a pension and Social Security, an $800,000 portfolio can last for many years. This is especially true if your expenses are low and you do not have significant healthcare costs. But again, there are a lot of variables. It is best to meet with a financial advisor who will help you create a customized retirement plan.
Tips for retirement savings
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A financial advisor can guide you in important financial decisions, such as determining your investment strategy. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Deciding how to invest can be a challenge, especially if you don’t know how much your money will grow over time. SmartAsset’s investment calculator can help you estimate how much your money will grow so you can decide which type of investment is right for you.
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Have an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But with a high-interest account, you can earn compound interest. Compare savings accounts from these banks.
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