subject: Retirement Challenges For The Near Retiree [print this page] Near-retiree today faces many retirement challenges, one of which is the possibility of an inadequate nest egg. Retiring in ten years or less makes the concern even more significant, as there is a lot less time to accumulate more money from savings and investment earnings. Before you try to find ways to make more money and bulk up your nest egg, you will need to recheck your retirement plans. Start by re-estimating the lump sum you require for your golden years.
Some experts recommend getting a rough estimate of how much you need to withdraw from your portfolio per year of retirement. After identifying the yearly withdrawal rate, multiply it by twenty to thirty, depending on your projected life expectancy. One guideline that many seniors follow is the 4% sustainable annual withdrawal rate, which is based on the assumption that you can take out this percentage from your account starting the first year of retirement and adjusting for annual inflation. This percentage also assumes a portfolio mix of bonds and stocks, and an overall amount you want to stretch over three decades.
If you do not think you have a big enough nest egg to permit the 4% annual withdrawal over twenty to thirty years, you will have to change your asset allocation to make more money, although you still need to work with an acceptable and financially manageable degree of risk. Putting more stocks into your portfolio will not be enough because there is not enough time to accumulate yields and compound your cash before you start to withdraw for your retirement expenses.
Retirement portfolios are usually established with long-term investment strategies, and typically use stocks as a major income source. However, returns that are higher than average also come with significant risk. When it comes to stocks, workers nearing retirement have a problem when it comes to catching up on funds: the large potential payouts from heavy stock investments in a strong market versus the chance of their presently inadequate retirement funds getting crushed within years of retiring, or some time before.
A portfolio allocation that is largely in stock considerably adds to the numbers of possible outcomes for the investor. Despite the likelihood of huge earnings in a strong stock market, things could also go the other way, and turn an already problematic situation into a critical one. To know more about how you, the near-retiree, can resolve these retirement challenges, consult with your investment advisor or retirement planner.
by: Katherine Smith
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