How much is Enough?

How much is enough to live the life you want during retirement?  A good question to ask yourself at any age, but difficult to know early in life.  If you have spent the last ten, twenty or thirty years working full time, you may think that your retirement savings are well ahead of what you may actually need.  

According to Penny Hoarder, only “27.5% of people ages 21 to 34 have a retirement account” If you save $100 each month starting at age 25, and your retirement account grows by 5% each year, you will have nearly $172,000 by the time you are 67, but if you wait another 10 years, then you will only save just under $95,000.  By the time you are 50, you should save at least six year’ worth of your salary. 

That being said, f you have not started saving for retirement, call us to open an account policy.  In 2019, the maximum annual IRA contribution is $6,000 for people under 50; it’s $7,000 for people 50 and up. If you start contributing $6,000 a year at 37, and your account grows by 3.25% annually, you will have $307,000 by the time you’re 67. Also if you have enough to make additional contributions that exceed the annual maximum or an IRA and Roth IRA, our, tax-deferred, annuities have the same interest rate structure.   

Experts generally agree that we need at least 70% of our pre-retirement income to live comfortably during retirement. Of course, everyone has a definition of comfort, so 70% may not be enough – or, in some relatively rare cases, it may be more than enough. However, it is clear that any retirement savings plan must begin with us asking ourselves: “What do I want to do with the rest of my life?”  This vision, this dream, should then fuel our efforts to save enough.

Retirement Dreams

In this article, we offer a few scenarios with estimates to give you a better idea of how much you need when the time comes.  In each case, individually tailored savings plans are important. Providence can help you design an appropriate plan based on your current situation as well as your idea of the retirement dream. 

The scenarios presented assume that the couple has a pre-retirement income of $80,000, expects a pension of $28,000 annually and will spend all its retirement savings during their lifetimes. Obviously, if they want to do more, such as helping grandchildren with college or leaving a legacy, they will need to save more. The figures also assume a 6% rate of return on investments and a 3% inflation rate.

The Homebodies

This couple views retirement as a time when they can relax and enjoy each others’ company. They will work in the garden, do charitable work and read good books. The mortgage will be paid off and the kids will be out of college. No plans of any extra expenses as far as travel or purchasing fancy cars or boats. 

• How much is enough: 70% of their pre-retirement income, or $56,000 annually.
• Savings needed with pension: $432,000 for $28,000 annually
• Savings needed without pension: $864,000 for $56,000 annually

The Snowbirds

This couple is much like the homebodies, and view retirement as one long vacation. However, rather than stay at home, they spend their winters in the Sunbelt. Whether they purchase a condo, or rent, their retirement will have to be higher than the 70% mentioned above. 

• How much is enough: 90% of income, or $72,000 annually.
• Savings needed with pension: $679,000 for $44,000 annually
• Savings needed without pension: $1.1 million for $72,000 annually

The Globetrotters 

This couple sees retirement as the beginning of a bold new chapter in their lives. They plan to travel the world – all of it: Argentina in Spring; The Alps in summer; Tuscan and the Riviera in Fall; and Bali in Winter. Oddly enough this hectic schedule requires earnings greater than those enjoyed in pre-retirement years. 

• How much is enough: 110% of income, or $88,000 annually.
• Savings needed with pension: $926,000 for $60,000 annually
• Savings needed without pension: $1.36 million for $88,000 annually

The Part-Timers 

This is the couple who finds joy in their job; it gives them a sense of purpose. They would feel lost not doing what they love so they plan on working twenty hours per week, thereby earning some additional income in the process.

• How much is enough: 50% of income, or $40,000 annually.
• Savings needed with pension: $185,000 for $12,000 annually
• Savings needed without pension: $617,000 for $40,000 annually

Reality – Life is Expensive

Now lets look at reality, life is expensive. You may fit the Homebodies category, but there are things that you want to possess to be comfortable.  For example a nice pool, or a vacation home on the beach for your grandchildren to visit during the summer. Or maybe you may want to sponsor a family vacation to a nice resort in the Poconos. You may want to donate to churches or charities. You may even like fancy clothes, purses, TVs or computers.  Just because you are retired does not mean that you should not be able to buy yourself some toys. There is also the possibility that you want to be a Homebody now, but when you get to retirement, your dream may change. So in reality, you will need to save more than the above amounts to have a little extra wiggle room.  

Retirement Expenses

The above calculations do not take into account some major expenses that you may encounter in retirement, including healthcare costs, existing debt, and taxes.  According to an article in the Motley Fool, “retirement healthcare costs range from $285,000 to over $363,000 for a 65-year old couple retiring in 2019.”  Also, taxes do not go away during retirement. Unless you saved exclusively in Roth Accounts, for instance, you will be taxed by that year’s tax brackets on amounts you withdraw from your retirement accounts. Taxes will also be due on your pension, property, investment, dividend and other income. 

It is absolutely possible to reach your retirement goals if you start investing your extra income today.  Although there are many investment opportunities, an IRA, Roth IRA or annuity are guaranteed forms of retirement saving that bear no risk. So even if you decide to be a bit risky with your investments, it is a good idea to place a significant portion of your retirement savings into these plans.  This way, no matter what happens with the stock market, you will still have enough to live your retirement dream.

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The inability to properly budget retirement savings stems from not knowing the date or circumstances of one’s death. The resulting fear of outliving savings makes seniors very conservative. They try to live on a self-inflicted meager budget. The constant stress and nagging fear of running out of money becomes nothing short of overwhelming and destroys many a dream of a joyous and relaxed retirement.

By using ‘risk pooling’ tactics and life tables generated by years of practical and actuarial (mathematical and statistical) studies by the insurance industry, fraternal benefit societies can readily help seniors with this problem.

Providence can review a senior’s living needs, his available monies and his estate desires. It can then create a monthly or yearly income stream (not unlike a regular supplemental pension benefit) through a Flexible Premium Deferred Annuity. If the senior then elects an appropriately recommended option, the regular payments will last for his and his spouse’s lives with any remaining principal going to his loved ones. If he dies prematurely the monies will go to a named beneficiary without any delays in probate.

There will be no more headaches with renewing CD’s. The bulk of the assets in the annuity will grow on a tax-deferred basis. Providence’s annuity currently pays 3.25% interest tax deferred and has a guarantee, that, regardless of what CD’s might do, an interest rate of at least 3.00% will be provided.

Our younger readers should consider using a Providence tax-deferred annuity to accumulate assets. Make an initial deposit and, at your discretion, regular additional deposits. Watch your savings grow without paying any taxes. At the right time (at age 59.5 or later), a regular income stream can be created for you.

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The Providence Association’s so-called flexible premium deferred annuity currently pays an interest rate of 3.25%. Although it can vary over the course of years, this rate of return will most likely always compare favorably with bank CDs.  And Providence guarantees a minimum interest rate of 3%, regardless of what CD rates might do in the future.

Moreover, Providence’s annuities are completely tax-deferred ‘ i.e. the investor pays no income taxes on interest, until withdrawals are made, regardless of how many years go by from the time of an initial deposit. This raises an annuity’s effective growth rate of interest to 5.30% (depending upon your tax bracket), levels that CDs cannot approach. The tax savings are further compounded in instances where the accumulation of wealth occurs while the investor is in a higher tax bracket and makes withdrawals in later years, after he has reached a far lower tax bracket.

Unlike CD’s Providence annuities allow for initial investments of only $300 and future deposits at the investor’s discretion and timing (there is a $50 minimum on future deposits). There are no renewal date concerns or worries. One can set a deposit schedule during an annuity’s accumulation phase, kt need not honor it. Deposits are completely flexible.

Because annuities are longer term savings and retirement vehicles, there is a penalty for withdrawals before the age of 59.5 and an annually decreasing surrender charge on withdrawals of over 10% annually, during the first six years. However, the fact that annuities are designed for accumulation of longer term investments makes these ‘limitations’ irrelevant.

Annuities are a great place ‘to park’ larger sums of money that investors might receive from inheritances, insurance policy or other endowments or retirement buyouts.

At the appropriate time, the insurer can design a suitable monthly payment schedule to the investor, during a carefully calculated guaranteed payout period. This relieves the investor of worries about monthly budgeting. Or, the investor can make his own withdrawal plan or schedule at the appropriate time ‘ after turning 59.5 and after the annuity is in place for six years.

Another great use for annuities is as a retirement savings vehicle. The younger investor can regularly make deposits and watch his accumulations grow tax free.

Withdrawals can then be made on a pre-determined schedule or at the investor’s discretion. Annuities are also a superior means for giving employees deferred income benefits.

Should the investor die, his monies will go to a designated beneficiary. Should he become disabled, surrender charges and penalties are waived on the accumulations.

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