Getting Down to Numbers: Practical Retirement Planning That Actually Works

Getting Down to Numbers: Practical Retirement Planning That Actually Works

Moving beyond anxiety and into action requires answering the practical questions that will shape your retirement reality. How much money do you actually need? What returns can you expect? Should you pay off the mortgage or keep investing? These aren't philosophical questions—they're the nuts and bolts of retirement planning that determine whether your golden years will be comfortable or stressful.

Creating Your Retirement Budget: Start With Reality

Building a retirement budget isn't about guessing what you might spend—it's about understanding what you actually spend now and how that will change. Track your current expenses for three months to get a real picture, then adjust for retirement realities. You'll likely spend less on commuting, work clothes, and retirement savings, but potentially more on healthcare, travel, and hobbies. A common mistake is assuming you'll spend dramatically less in retirement. Many retirees find their spending stays relatively stable, especially in early retirement when they're healthy and active. Plan for 80-90% of your current income needs, then adjust based on your specific retirement vision.

How Much Money Do You Actually Need?

 The 4% rule provides a starting point: if you can withdraw 4% of your portfolio annually, it should theoretically last 30 years. This means you need 25 times your annual retirement expenses saved. If you need $60,000 per year in retirement, you'd need $1.5 million saved. However, this rule assumes you never adjust your spending and ignores Social Security and pensions. A more realistic approach: calculate your expenses, subtract guaranteed income (Social Security, pensions), then multiply the difference by 25. Don't forget to factor in inflation—what costs $60,000 today will cost about $81,000 in 15 years at 2% inflation.

Investment Returns: Managing Expectations in a Changing World

Historically, a balanced portfolio (60% stocks, 40% bonds) has returned about 7-8% annually, but future returns may be lower due to high market valuations and low interest rates. Plan conservatively with 6-7% expected returns rather than the 10%+ some online calculators suggest. This means you'll need to save more, but you'll avoid the disappointment of coming up short. Remember, you don't need to beat the market—you just need steady, consistent growth. Low-cost index funds that track the market have historically outperformed most actively managed funds after fees.

The Great Mortgage Debate: Pay Off or Keep Investing?

Whether to pay off your mortgage before retirement depends on your interest rate, tax situation, and peace of mind. If your mortgage rate is below 4-5%, you're likely better off investing extra money in retirement accounts, especially if you're behind on savings. The tax deduction for mortgage interest and the potential for higher investment returns make this mathematically favorable. However, if you're on track for retirement and paying off the mortgage would eliminate your largest monthly expense, the emotional benefits of being debt-free might outweigh the math. There's no universally right answer—choose based on your risk tolerance and overall financial picture.

Balancing College and Retirement: The Impossible Choice

Many parents in their 40s and 50s face the agonizing choice between funding their children's education and their own retirement. Here's the truth: you can borrow for college, but you can't borrow for retirement. Prioritize your retirement savings first, then help with college if possible. Consider state schools, community college for the first two years, or encouraging your children to work part-time and take on reasonable student loans. Many families find that being honest about financial limitations leads to creative solutions and teaches valuable lessons about money management. Your children will benefit more from parents who aren't financially dependent on them in old age than from a college education that bankrupts the family.

-Brian D. Muller, AAMS® Founder, Wealth Advisor

XYPN Invest Disclaimer:
Brian Muller is an Investment Adviser Representative of XYPN Invest, an SEC-registered investment advisory firm doing business as Momentous Wealth Advisors. This content is not published on behalf of XYPN Invest, and the views expressed herein are solely those of the author.

Disclaimer: This material is for informational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. Investors should make investment decisions based on their unique investment objectives and financial situation. While the information is believed to be accurate, it is not guaranteed and is subject to change without notice.

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