When Should I Retire?

Few decisions in your life are as complex and fraught with significant consequences as the decision on when to retire. For most of us, this decision will affect more than just ourselves. Your decision cannot be made in a vacuum if you have a significant other, spouse, or others that depend on your paycheck. Many will consider issues such as the size of their retirement and investment portfolios, age, physical health, and the state of the economy. Still, others look to stagnation and boredom with their careers, the availability of a pension or social security, or even an inheritance.

Many books have been written about retirement and there is a wide spectrum of opinion on when people should retire, especially given that people are generally living longer. It was not so long ago that people rarely lived into their 70’s. Today, it is common for people to live to their 90’s or beyond. The fact that our lifespans are increasing with advances in medicine and technology begs the question: should we retire at all?

A very large segment of the country retires at age 62, which coincidentally is the earliest age you can qualify for social security retirement benefits. However, for the eager beavers who decide to do so, they should know that those benefits could potentially be permanently reduced by about 25 percent. For someone who might be around until age 92, that’s a lot of income to forgo. It is possible you may spend three decades in retirement. What the heck are you going to do with yourself for all those years? Visit the grand-kids, play golf, or work in the garden?

Before you even consider the idea of when to retire, engage the services of a financial and retirement income advisor team. Ideally, you will want to work with individuals who have decades of experience working with people similar to you. You will want to look for someone who is not close to retiring themselves.  Imagine how hard it could be to find someone you can trust 10 years from now when your advisor retires.  That is the last thing you will want to do while enjoying your Golden Years.

With all this said, remember that the decision as to when to retire does not just affect you. Your loved ones deserve to be part of the conversation and the decision-making process. Make sure your planning takes into account the financial aspect of retirement and also the life and living parts. You may have bid your spouse goodbye five days a week at 8:00 am for decades. But when that stops, things will change. That change may be for the better or worse, and you need to plan for that, too.


1930518/DOFU 10-2017

As We Head Towards Dow Jones 20,000 And Turn The Page On 2016…

Disclaimer:  I wrote this article in early January 2017, but this information should still provide value.

As we head towards Dow 20,000 and turn the page on 2016, now is the perfect time to map out your financial resolutions for the New Year and beyond.  Here are a few suggestions for making 2017 healthy, happy and successful:

  1. Create emergency savings

Life is full of unexpected emergencies, and having extra cash on hand can help keep a serious illness, home repair, or other sudden financial need from derailing your finances.  Prepare for unpredictable expenses by putting aside the equivalent of three to six months of expenditures.

  1. Make a monthly budget and stick to it

Budgets may sound like a lot of unnecessary work, especially if you’re financially comfortable.  But if you’re not tracking your spending, you may be surprised by how quickly it adds up – and which expenses are costing you the most.  As 2017 begins, set a budget and work on sticking to it for three months.  Track your performance and revise the budget, as needed.  Don’t aim for perfection, instead, try for incremental improvement.

  1. Save more for the future

Creating a disciplined savings strategy is an important way to stay on track for your retirement and other goals.  We recommend keeping separate “buckets” of savings for short- and long-term goals.

  1. Make retirement plan contributions regularly (instead of all at once)

Even if you’re diligently saving, you may be among the 71% of Americans who haven’t put aside enough money for retirement.  One key change you can make is to take advantage of “time in the market”.  Instead of waiting until the last minute to make your annual contributions, give your money more time to potentially grow by making automatic contributions to your account every month. (Source: Washington Post)

  1. Maximize your retirement-plan contributions

Tax-managed retirement accounts are one of the most powerful ways to save for a more comfortable retirement, because they allow you to control your tax liabilities today – while potentially accumulating assets for the future.  Make the most of these accounts by contributing as much as you can.

  1. Pay down high-interest debt

Did you know that 54% of Americans believe they will never pay off their debts?  Don’t let high interest debt keep you from getting ahead financially.  If you’re carrying a significant amount of debt, make paying it down a top priority. (Source: Associated Press)

  1. Create a powerful legacy for the world

We believe that a rich life involves more than financial success and a comfortable lifestyle.  Whether you want to leave something to your loved ones or support causes you care about, take time to address the legacy you’d like to leave.

  1. Review your estate planning and legal documents

Your core legal documents need regular reviews to ensure they keep up with any changes in your life.  If a few years have passed since you looked at your documents, dust them off and make sure that they still represent your wishes.

  1. Stay on top of your health

Healthcare is a major expense for most Americans, especially if serious illness strikes.  Take steps to protect your well-being by building a healthy lifestyle and prioritizing preventative care.

  1. Involve your children and grandchildren in your finances

Fostering financial wisdom is a powerful way to help your children and grandchildren build a solid, stable life – and help ensure you’re able to pass on your values and wealth in the future.  Rather than keeping your finances private from your loved ones, we recommend including them in conversations about your goals and priorities.

Think long-term, not short-term.  Recently, we’ve spoken to many clients who want to ride the post-election growth train.  Just as we’re here to help you from despairing when stocks tumble, we also want to help control the euphoria when markets rally.  This has been a narrow rally, and rallies don’t usually continue forever.  Impulsive choices can challenge your long-term objectives.  As always, it’s important to take the right amount of risk for your unique circumstances and stay focused on the long-term goals that we are pursuing together.

Have a Safe and Happy New Year!


2011373 /DOFU 02/2018

How much will I need and how much should I save for retirement?

Over the course of my career I would say one of the top ten questions I am asked, if not top five, is; how much do I need to save for retirement? Or phrased another way, what is my magic number? 

The answer to that question is; it depends.

Nobody likes hearing that answer but it is the truth.  Figuring out how much you will need at retirement is a complicated topic and unless we are sitting at a table together I don’t think I can give you a precise number.  But what I hope to accomplish in this guide is get you a number that is probably within the range of what you could need when you retire.  The numbers you are about to see might concern you…retirement is not cheap.  But with a good strategy and the determination to get there you can succeed.

We utilize a 4-Step process for retirement preparation that helps simplify your financial situation down to some basic information.  As I mentioned before, this isn’t going to be an exact number but should be in the ballpark.  As you get closer to retirement you will then be able to fine tune your strategy because you will hopefully have a better idea of what you want to do in retirement, where you plan to live and what your expenses are.  My 4-Step process is this:

  1. How much money will I need to have set aside at retirement that I can then turn into an income stream for retirement?
  2. How much money do I need to save each month to get to that nest egg?
  3. What financial vehicles could I use to work on building that nest egg in a tax-efficient way?
  4. What tactics/investments fit my risk tolerance and time horizon to help me meet my retirement goals?

If you have access to a financial calculator you will be able to get a more precise number for your situation. You will see some charts in the following articles that might get you close to your number but using a financial calculator or an online calculator is going give you a more tailored number for your situation.

Ready to begin?  If yes, please proceed to 

2107619 / DOFU 5-2018

Step 1 – How much money will I need in retirement?

How much money will I need to have set aside at retirement that I can then turn into an income stream for my retirement?

Our first step is determining how much money you will need to have sitting there at retirement, which you can then turn into an income stream for retirement so you hopefully never have to go back to work.  You will be paying yourself not to work!  How great is that?

The chart you will see below is an excel program I created so we could quickly come up with an approximate number using just your current income, years until retirement, what we assume the inflation rate will average per year and how much of your current income you think you will need to replace at retirement.  Many financial and economic experts recommend around 80% of your pre-retirement income should be replaced in retirement.  I will caution you though; I have worked with many people who spent MORE in retirement and many who have spent a lot less.  Use this as a general guide to get you started.

Also, if your income is going to most likely change significantly over time, you will want to account for that as well.  Hypothetically speaking, if you are a medical resident earning $50,000 a year but will be making $350,000 a year in private practice, you will want to use the $350,000 number as that will be the lifestyle you will be accustomed to.  This holds true for any profession where your income will most likely change considerably as time goes on.


“If you want to have a better performance than the crowd, you must do things differently from the crowd.”  –  Sir John Templeton


The way you read this chart is left to right.  Pick a number in the first column that is close to your current income or the income you feel you will most likely be at fairly soon.  In my chart I picked 30 years until retirement and used the long-term historical average for inflation as my theoretical assumption.  I also used a 75% income replacement rate for when you retire.  So if you are making $40,000 a year and have about 30 years until retirement then you will need about $1,456,000 sitting there at retirement.

Assumptions: This final sum of money is expected to produce an income stream for at
least 20 years if you withdrew exactly 5% and took no risk with the funds.  If you put the money in an interest bearing account, it could last longer.  If you choose to
invest it in variable, market based, investments it could last a lot longer or not as
long, depending on market performance.  Each person would want to analyze independentlywhat would be best for them and their assumed life expectancy.

Retirement Next Egg Chart

This hypothetical example is for illustrative purposes only. Not based on any particular investment. Investments will fluctuate and when redeemed, may be worth more or less than originally invested. Figures do not include transaction costs, taxes, or expenses.

If you are making $240,000 a year and have about 30 years until retirement you will need about $8,738,000.  The numbers look so big because the rising costs of goods and services over 30 years will be significant if we average 3% inflation.  Just ask your parents what they paid for their first home or first car and you will quickly realize what affect time has on money.

If you want a custom one for you please feel free to email me at larry@midwestwealthadvisors.com and I can send you one right away.  Just let me know the income you want me to use, how long until you retire, and the inflation and replacement rates you are comfortable using.

After the foregoing, let me hopefully give you some good news.  If you are participating in a 401k or 403b, hopefully your employer provides a match on the dollars you put in.  Even if it’s 1%, every little bit helps you in pursuit of your number.  Also, you may have an employer pension that could contribute to your retirement income in the future, that will help as well.  For those who feel social security will provide something at retirement, you could factor that in as well.  So the number might not be as daunting as you think.


For Step 2, please see the next post…Step 2 – Monthly Savings to Reach Retirement Goals

2107619 / DOFU 5-2018

Step 2 – Monthly Savings to Reach Retirement Goals

How much money do I need to save each month to reach that nest egg?

             I decided to stick to a 30 year time horizon and include the chart from my excel program that shows how much a person needs to save each month.  You will notice the bottom line is for those who already have savings set aside that we should account for.

Same thing as before, read the chart left to right.  First we look at how much monthly savings is available.  Then we look at how many years we have to save that money.  Lastly, we hope for some sort of rate of return on those savings. You will notice I picked a hypothetical 8% per year as the assumed rate of return over a 30 year period. Keep in mind that past performance is not indicative of future results.  Rates of return will fluctuate and your accumulation value may be higher or lower than those shown below.

How much do I need to save Chart

This is a hypothetical example for illustrative purposes only.  It is not indicative of any particular investment or guarantee of future performance.
These values assume that the currently assumed hypothetical elements will continue unchanged for all years shown. This is not likely to occur and actual results may be more or less favorable than those shown.  It does not take into account the reduction of potential fees and expenses.  If it did, results would be lower than those shown.

Hypothetically speaking, say you determined you needed about $2,000,000 to retire in 30 years.  If you look at the right side of the chart, find roughly where $2,000,000 is and then go back to the left side to see how much savings needs to be invested each month you will see its between $1250 and $1500 a month.  Keep in mind, if you do have an employer match, pension or feel you can count on social security, than that should be factored in.  Ignoring pensions and social security, you might have an employer that matches 50 cents on every dollar you put in your 401k.  So if you put in $1000 a month they would put in $500 a month.  If you are fortunate enough to have an employer with that generous of a 401k match then you have to come up with $1000 a month to put in and they will take care of the $500 and that alone will help get you on your way to your retirement goal in this example.

One nice benefit to using this step by step process is you already accounted for inflation in Step 1.  We decided on a hypothetical inflation rate and used that in our calculations to determine the total amount of money needed at retirement.  So the total sum of money we came up with had an assumed inflation rate factored in.  That helps us because when we go to the next chart, we only have to find the amount needed to save each month to get to that end result vs. having to find a dollar amount but then increase it each year by an assumed inflation rate.  So that means, in the above hypothetical example, you only need to save $1000 a month and not increase it later on as you get raises, promotions, bonuses, etc.  Some retirement plans have you increasing as time goes on and hopes those pay raises, bonuses, etc. come into play.  I like to start with saving exactly what needs to be saved (of course only if it’s possible and won’t leave you starving at the end of the day) and as you do get pay raises you can have fun with that extra income vs. having to save more and more as time goes on.

Lastly, the assumptions we used could be low or high, so this strategy does call for some flexibility as time goes on, but if our assumptions are pretty close, you may not have to change things too much as the years roll on by.

For Step 3, look for my next post…Step 3 – Where should I save for retirement?

2107619 / DOFU 5-2018

How do I know if my money will last when I retire?

This is one of the most important questions, if not THE most important, that retirees need to ask themselves before taking the plunge.  If one leaves the workforce completely the paychecks stop and they are left to rely on their savings, social security and possibly a pension.  Those without a pension need to be even more careful, especially if they want or intend to spend more each month than social security provides.  This spending can only come from one place, their savings.

Figuring out how long your money will last in retirement has stumped many.  There are a lot of assumptions and variables that could go in that calculation.  The first being, how long will you live?  Nobody knows that answer…so that’s our first assumption.  You could work off of statistics, off of family health history, neither or both.  For most married couples, I recommend assuming at least one person will make it to 95.  Modern medicine is amazing.  Some people live longer than they thought, and are more active at later ages than they ever thought they would be.  So choose this number wisely, and to be safe, maybe add 5 years to your guess.

The next big question is what will stuff cost 5, 10, 20, 30 years from now.  30 years ago the cost of a new car averaged $6,294 and today they average $26,700.  A gallon of milk was $1.94 and now the average is $3.52*.  Many people forget to account for the rising cost of goods and services.

Many economists say you should consider having to take out an additional 3% to 4% per year.  So, for example, if you pull out $1,000 a month from your savings this year, plan to take out $1,030 or $1,040 a month next year.  Then 3% or 4% of that amount the next year…and on and on you go.

Lastly, you need to determine a “safe” withdrawal rate.  This is how much you can spend each year from your savings and not run out of money.  This can vary a lot from family to family so please be careful on this step.

Please don’t take this process lightly and by all means, consult with a professional if you feel you can’t do an unbiased assessment yourself.

*Source: http://www.inthe80s.com/prices.shtml

2011359 /DOFU 1-2018