How Do I Know When I Can Retire?
Hi, I’m David Witter, founder and CEO of Financial Harvest Wealth Advisors. A common question that I get from clients is, “David, how do I know when I can retire?”
I’m going to explain the answer by giving an example.
Ready to Retire? How Much Will You Need?
Let’s say that you come into our offices at the time you want to retire, and you say, “hey, I want to retire next month. I want to know if I have enough.”
Begin With Retirement Savings
Then, let’s imagine that you have $2 million in retirement savings. What we would start with is the 4% safe withdrawal rate.
Withdraw 4% Safely
And 4% of $2 million means that you can safely withdraw $80,000 per year of pre-tax income from your retirement accounts, and inflate that over time through your retirement years.
Social Security or a Pension Adds to Total
So, in that example, you’d take out $80,000 from your savings and investments. But most likely, you could have social security or a pension that you can add to that.
Then, let’s say you have $40,000 in social security or a pension that you can add to the $80,000. Now, you’re at $120,000 a year of pre-tax income.
Take Out Money for Taxes
Then, let’s say you take out $30,000 for taxes. That leaves you with $90,000 to spend.
Then you can assess and decide whether $90,000 annually is enough to support your lifestyle? Only you can answer that.
But that’s how we answer the question, “do I have enough to be able to retire?”
I’m David Witter, founder, and CEO of Financial Harvest Wealth Advisors. You may reach me via e-mail, or by calling the office to make an appointment.