Special Report 1

A MoneyDiva.com Special Report:

3 Steps to Take, NOW, to Guarantee Yourself a Fabulous Retirement Income

Money Tree

Planning for retirement can seem like having a second job! And one with an annoying, overbearing boss, at that. There’s no denying that creating and executing a plan for the last quarter of your life takes some time and effort but it doesn’t have to be so overwhelming.

By following this step-by-step guide, you can relax, knowing you’ve covered the basics and are headed towards a secure and prosperous retirement.

Discover What Your Retirement Income Needs Will Really Be... 

​STEP 1: How Much Your Savings and Investment Accounts Must Provide 

Money Tree

First, you need to decide how much income you want to fund your post-work lifestyle from your retirement funds each month (or year). 

To find this number, you’ll need to figure:

>> Projected income from pensions and annuities you’re vested in. 

>> Projected income from Social Security or other government backed retirement programs. **

>> Projected expenses after retirement. 

The difference, between what you’ll need to live the life you desire and your income from pensions and programs, is the amount you’ll want to withdraw from your investment accounts each month or year. 

** If you're not sure how much to expect from your Social Security account, get a step-by-step worksheet: Just send me an email at: SS(at)MoneyDiva.com titled: Find My Social Security Number.

We all know making long-term plans includes a fair amount of guesswork; in this phase, your expenses are the biggest variable. Many planners try to simplify finding your retirement income needs by using a percentage of your current income.

You’ve got a choice of three methods to estimate how much income you’ll want in retirement.

1. You can give yourself a quick quiz (First Tab below) 

2. Or, consider each of the nine major expense categories and whether yours will increase or decrease in retirement (Second Tab)

3. Gather your current budget data and use the retirement ratio formula to find your target (Third Tab)

  • 1. QUIZ 
  • 2. CATEGORIES 
  • 3. FORMULA 

Retirement Expenses Quiz

1. Will your mortgage (or rent) payments change?                                                   

DIFFERENCE? 

SCORE 

My home will be mortgage free.

LOWER 

0

The mortgage/rent won’t change much. 

SAME 

I plan to increase my housing costs. 

HIGHER 

2. What will you pay for health insurance and treatments?                                         

DIFFERENCE? 

SCORE 

I expect my payments to decrease. 

LOWER 

0

My medical costs should be similar. 

SAME 

My insurance and out-of-pocket will increase. 

HIGHER 

​** Unless you have access to a guaranteed, low cost health insurance program (or plan to relocate to a country with universal coverage), most of us can expect a rise of 5% or more per year in medical costs over our lifetimes!

3. How much debt will you carry in retirement?                                                          

DIFFERENCE? 

SCORE 

​I am (or plan to be) debt-free by retirement. 

LOWER 

0

​I’ll continue making my regular payments. 

SAME 

​I plan to borrow more money while retired. 

HIGHER 

4. What kind of major purchases do you anticipate making in retirement?             

DIFFERENCE? 

SCORE 

​Little or none - my home and car are fine. 

LOWER 

0

​I’ll need to replace cars and appliances. 

SAME 

​I plan to upgrade after I retire. 

HIGHER 

5. How much (and what type) of travel will you want to do during retirement?       

DIFFERENCE? 

SCORE 

​Not much - I’ll let the world come to me. 

LOWER 

0

​I enjoy getting out to see folks. 

SAME 

​I’ll finally have plenty of time to see the world! 

HIGHER 

6. What do you plan to spend on hobbies, gifts and other recreational activities?

DIFFERENCE? 

SCORE 

​Not so much - I’ve got what I need. 

LOWER 

0

​I plan to maintain my activities and giving. 

SAME 

​More time means I’ll spend more on recreation. 

HIGHER 

7. Will you continue to provide financial assistance to children and/or parents?

DIFFERENCE? 

SCORE 

​No - they’ll be able to take of themselves. 

LOWER 

0

​Some - they count on my help. 

SAME 

More - I’m wealthy and they need help. ​

HIGHER 

Retirement Income Quiz Score:  

Income Replacement Ratio:

Zero - 1

 60% 

2 - 4 

 70% 

5 - 8 

 80% 

9 - 12 

13+ 

 90% 

100% 

Of course that’s still an estimate - but within your answers to these seven questions lays the solution to creating the retirement lifestyle you desire. You can spend more time comparing your current expenditures and your post-working life projections and create a detailed budget, divided between early, mid and later retirement phases, to get a more accurate projection of your investment income needs.

I check my net worth, my spending and saving progress, and my portfolio (combined from several different bank, real estate and brokerage accounts) using Personal Capital at least once a week, sometimes every day ...                      

... after all, it's free and so easy.

Personal Capital has great tools for tracking spending (some users have cut their spending by as much as 15%), but what I love most is their automated financial dashboard.

That's where you will look at all your assets and debts, it will look at your asset allocation, project where you'll be at retirement, and find suggestions about how to manage risk and improve returns.

It's free, I think their tools and charts are great, and it's worth checking out

- like you can do by clicking here>>

​STEP 2. How Much to Expect from Your Savings and Investment Accounts

Next, you’ll need to know what ROI (return on investment) you can realistically expect on your retirement savings/investment accounts. This is where standard financial planning attempts to assess your “risk tolerance” and allocate your funds between debt (bonds) with fixed returns, equity (stocks) which provide both dividends and capital gains/losses along with volatility, and cash (near zero returns).

If you have not been actively investing for 10 years or more, you’ll have to do some guessing about the ROI and risk you'll assume. If you’ve established a track record and have been following a customized plan, you can project based on your own results and proven risk tolerance.

Note too, that the financial planning community uses a couple rules-of-thumb regarding the percentage of your accounts you can withdraw annually and still have a good chance of funding your entire 20+ year retirement life. The most conservative is 4% of the balance.

Using what’s called a Monte-Carlo calculation (probabilities), you can see how changes in your beginning balance, withdrawal rate, the number of years you plan to be retired and your Stock/Bond/Cash allocation change the possibility of you running out of money before you die.

Vanguard offers a free and easy calculator (just click the images below to create one for yourself). 

Here are two different ways to get the probability of your accounts enduring to over 90%. The first one projects a full 30 years of retirement, a “conservative” 25/50/25 stock/bond/cash allocation and the 4% withdrawal from a million dollar beginning balance:

So, for every $10,000 in annual income you need from your investment accounts,

you’ll need to start with a quarter million dollars.

But, if you’re willing to work 5 more years (cut retirement down to 25 years) and save another $700,000 plus be more aggressive in your allocation (70/20/10), you can take out 4.4% per year and have a 91% chance of dying before your money runs out!


You’ll need only $226,667 in your account for every $10,000 of annual income for a 25 year retirement if you’re willing to keep 70 percent of your investments in the more volatile equities.

The asset returns in Vanguard’s simulation are based on the long-term performance of some representative indexes: 

  • Stocks on various equity indexes (they’ve changed over the years) that, in Vanguard’s opinion, represent achievable returns for average investors; 
  • bonds on high grade corporate indexes and 
  • cash returns are based on the short-term Treasury Bill indexes.

As the disclaimer says, your results may vary. 

3. Know Your Number - Target for Savings and Investment Balances

Money Tree

Now that you have an income target and an earnings estimate, you can determine the size of the account you’ll need to build before hitting your retirement age.

In the financial press, this is referred to as your “NUMBER”

I teach people to find both their minimum number and a high-end number. Once you reach your minimum, you can consider taking some chances - what if you quit your high-paying, high-stress job early and go work for that non-profit at a drastically reduced salary?

Or maybe just start taking all your vacation days and check a few of those bucket-list items off before you’re too old to enjoy an elephant ride through the jungle?

But, you've still got your big, high-end number that keeps your accounts growing and would fund all your dreams: round-the-world trips, grandkids' colleges, charitable endowments - whatever you've got on your list!

>> Let's see how this works with four examples:

  • Ruth – divorced, mom of two college students
  • Carol & Bob  – dual income, two college bound teenagers
  • Craig and Bettie – single income, three children
  • Jackie – single, no children

Jackie has always been a renter - she’s been forced to relocate several times to stay employed - but wants to buy a small retirement home.

She isn’t a big spender but wants to do some traveling and scuba dive more often when she retires at 67 years old. She saves about 10% of her income in her employer’s 401k plan (with a 2% match), carries no consumer debt and pays a small portion of her health insurance. Her car is paid off but she’ll need to buy at least one newer model car before retirement and another one after she retires.

If Jackie plans on buying with a mortgage (almost always more expensive than renting for the first 10 years), spending more on entertainment and covering her own medical expenses, she will need to replace at least 100% of her pre-retirement income to finance her expected retirement lifestyle.

Assuming she collects $20,000 in Social Security, she’ll need to withdraw $25,000 per year from that 401k which needs to be at least $625,000 if she expects it to last her 30 years!

It’s a good thing Jackie is young and has lots of time to save… but, she also needs to learn how to create income from her savings/investments so her savings can compound over the next 20+ years she works and throughout her retirement.

So, I hope you can see how important planning and knowing your answers to these three steps are to your secure (and fabulous) financial future.

REMEMBER: GO NOW and ...

1. Decide how much income you want from your retirement funds each month or year.

Take the quiz in step 1, or 

Use the budget projections to find the ratio of retirement income need to your current income or

Work out a realistic retirement budget for each of the major categories of expenses.

2. Project the ROI (return on investment) you need to meet your savings and investment income goals.

Know that yes, it is possible to earn significantly more than the “conservative” 4%. But, that means you want to learn (and are willing to do the work) to improve your returns and get comfortable with volatility (and use it to your advantage). **MoneyDiva can help you with this process too! 

​The sooner you start, the sooner compounding, the “8th Wonder of the World”, according to Albert Einstein, kicks your returns into high gear.

3. Know: Your minimum NUMBER and your high-end NUMBER.

How much more do you need in your accounts to securely withdraw enough to fund your retirement lifestyle?​

And, what’s your plan for getting to your NUMBER? 

>> ​Will you work more years?

>> Can you reduce the costs of your desired lifestyle?

>> Or learn to increase the ROI of your investments? ​

All these are options - you can pick one or combine them to achieve financial freedom during your “golden years”. But, to live the fabulous retirement of your dreams, you need to plan ahead and start ASAP!

I’d love to hear about how this special report helps you find and achieve your retirement income goals. Talking about income and financial information can be a taboo subject so, if you’d prefer to email me privately, with your calculations or any questions send me an email at: Leah(at)MoneyDiva.com

While I can’t offer specific financial advice, I am happy to clarify any points, direct you to more resources and cheer you on!

MoneyDiva.com

Live Long and Prosper, Leah the MoneyDiva.com