The Challenge
For example, let’s say Mike and Cindy are both sixty-six and have $800,000 saved in Bucket 3 for retirement. They both decide they want to retire, so they meet with their financial advisor and learn that they’ll need $100,000 per year to live the way they want. This includes travel, basic expenses, health-care, home maintenance, etc. Also, this number is net of taxes, meaning they’ll need $100,000 per year after any taxes.
Together, they get $40,000 from Social Security, leaving $60,000 per year that they must cover. If they take 4 percent per year from their $800,000 retirement fund, that’s $32,000, still leaving a $28,000 shortfall. Plus, assuming they’re in the 20 percent tax bracket, they’ll need $125,000 to net $100,000 after 20 percent in taxes. This leaves a $53,000 gap between their expenses and current income.
The Challenge
Together, they get $40,000 from Social Security, leaving $60,000 per year that they must cover. If they take 4 percent per year from their $800,000 retirement fund, that’s $32,000, still leaving a $28,000 shortfall. Plus, assuming they’re in the 20 percent tax bracket, they’ll need $125,000 to net $100,000 after 20 percent in taxes. This leaves a $53,000 gap between their expenses and current income.
The Solution
The solution? They can either adjust their lifestyle to spend around $70,000, annually, or come up with a combined income of $50,000, annually, to accommodate their
current lifestyle. Ideally, the retire-while-you-work scenario would be for each of them to pursue a passion career where they can each make $25,000 per year, enjoy what they do, and stay engaged, healthy, and connected.
Life is all about trade-offs. Want to live off more income during retirement? Work part time. Want to play golf and enjoy the beach all day? Live off fixed income (Social Security and any pensions) and use no more than 4 percent or so of your retirement funds from Bucket 3.
