A 7% projected average returns for your total portfolio and the old standby of 4% withdrawal rate are both too optimistic – as the S&P 500 has dropped 25% for the first three quarters of the year, experts say.
When markets are down, you don’t want to look at your 401 statement. But with a potential “lost decade” of stock returns looming, you have to at least take a peek, because it’s time to get real about your ability to afford retirement.
3 key numbers to update The way most people save for retirement is to first come up with a big, round amount that they’ll need, like $1 million, and then calculate backwards to see how much to save today to get there. That entails a few key pieces of information. On the one hand are the big imponderables that are specific to you, such as when you will retire, how long you will live and how much you’ll spend.
Depending on how much you have saved, you might be surprised that the dollar amount is not that huge. He says 5% is closer to reality. That’ll change your numbers, even over relatively short time periods. Say you are 55 and have $100,000 saved for retirement now. The difference over 10 years between those two assumptions is around $34,000.
But remember that’s an average, so half the time the returns will be higher and half the time lower, and what you’re looking for is an end number that will give you a high probability of not running out of money before you die. That means you need to look at the worst-case scenario and make sure that if returns bottom out, you’ll still have enough money.3. Inflation Fed chairman Jerome Powell has set his goal for inflation at 2%.
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