A question that comes around often is not only how much you should save for retirement, but how much you should spend in retirement.

When it comes to talking about how much to save, many times the rule of thumb is 10-15%. However, that assumes that you have saved that same amount for your entire career, and many of us haven’t. 

Instead of just assuming a single savings rate, many financial advisors will suggest that you start by working backward. That means deciding when you want to retire and how much you’ll spend each year in retirement. 

Once you set those targets, you can work backward to get the number you’ll need and then divide that by your remaining years and figure in market return. This will help you figure out how much you need to save.

While this is a valid strategy many advisors use, an issue that arises here is that situations change. If you do this in your 20s, 30s or 50s, your priorities can be completely different when you’re in your 60s. Working backward can work, but you may want to check that the plan you made 20 or 30 years ago will still appeal to you when it comes to the time of retirement. 
When it comes to figuring out how much to spend in retirement, many investors and advisors use the 4% rule, which says you can take about 4% of your portfolio in distributions every year.

But as we’ve seen this year, inflation doesn’t always cooperate. If you don’t have strategies in your portfolio to combat inflation and haven’t planned for these kinds of unknowns, the 4% rule may not work for you.

While these rules are a good starting place, they can be rigid. Life throws many challenges at you along the way and it’s important to make sure you have a good game plan that can adjust to these different circumstances to keep you on track.

The best course of action is usually to work with a Certified Financial Planner Professional along the way to help you reach the retirement you deserve.  If you have questions about your retirement, give us a call at 216-520-1711 or visit www.lineweaver.net to set up an appointment. We’re here to help! 

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