Will I run out of money before I die? That is the main concern for a majority of people in every age group. Will I have enough money to retire?

This was the question posed on Investopedia:

“I’m a 54 year old married man with 2 children in college. I have enough saved in a 529, along with their scholarships, to provide full undergrad educations for them debt free (grad school is on them). My wife and I both work, with an income north of $200K collectively. We have amassed about $950K in our 401(k) plans, another $100K in savings and own our $350K home mortgage free. We maxed out our 401(k) plans at $48K/year and also contribute to our Roths at $200/month each.

I estimate that at 65 years old, with minimal returns, we’ll have about $1.3 million and our home debt free. Is that enough? What else should we be doing?”

Three other financial advisors answered his question, congratulating him on what he had accumulated and saying that he was pretty well set.

My response was the fourth, and I wanted to be honest. Here is what I said:

“$1.3 million seems like a big chunk of money. However, with only $1.3 million you run a significant risk of running out of money before you die. As Joe pointed out, a 3% withdrawal rate will earn $39,000 annually and if you both get maximum social security, you will have total income of about $100,000 per year. That is a replacement of about 50% of your current income. You risk running out of money in your mid-80s. The average life expectancy of a 65-year-old when you retire will be in the high 80s if current trends continue. That means half the 65-year-olds will live longer. The fastest growing segment of the population is the centenarians.

You will need almost $ 4 million to maintain your current income without a risk of running out of money based on the 3% withdrawal rate. There are four options for you to consider.

1. You can save more. It is unlikely you will get to where you need to be solely by saving more in the next 11 years.
2. You can work longer and postpone retirement.
3. You can seek better returns.
4. A combination of all the above.

I wish I could say you have all you need. But in all honesty that would be deceiving you. You are short. If you continue to save as you are now, work two extra years to age 67, and achieve 8% per year returns you should be very close to the $4 million you will need.

If you plan to use a financial advisor, and I would recommend doing so, find one who publishes at least a ten-year track record showing a composite for all accounts with no “carve outs”. (Some composites carve out new accounts, poor performing accounts, and terminated accounts – be sure all those are included.) Also, be sure the track record is actual and not a “back-tested” hypothetical return.

You are asking the right questions at the right time. You have enough time to achieve a successful retirement and enjoyment of your “golden years”.”

This is not an atypical question. Having $1 million seems like a lot of money, and it probably did to the three previous advisors who answered with congratulations and said that $1.3 million was adequate for retirement. It seems like a lot of money. But it is not enough given the earnings the couple had and their requirements in retirement.

There was time when replacing 80% of your ending salaries was adequate for retirement. We did not live as long then, and the average medical premiums for insurance were lower. Health care costs were less. With advancing longevity, health care costs, and transportation costs, we at AFC believe retirees will need closer to 130% of their pre-retirement income to have the “golden years” rather than the “olden years”.

We believe it is not too late, even for the recently retired, to restructure their investment portfolios to achieve a 130% replacement of salaried income. If you are not there now, you should begin a no-obligation dialogue with us at Adams Financial Concepts. Do it now before it is too late.

A. Michael Adams
President & Principal