FundRobot » Investments » What is a good level of retirement savings?

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Old   #1 (permalink)
 
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Default a good level of retirement savings

Forgive me as I may be a novice in this area, but I'm trying to learn more about personal finances and such.

I'm not very familiar with how retirement portfolios typically work, but I figured if somebody bought $1M worth of stocks that paid roughly 5% annual dividends, that person would receive about $50,000 per year. I know this would not be a very diverse portfolio and the stock price fluctuation would make their income very too much, but still.

Let's say that somebody has zero assets other than a lump sum of money at the given moment. How much would that person need to have, in your opinion, to invest in a sufficient retirement portfolio?
Would any of you recommend specific books or online resources?

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Old   #2 (permalink)
 
Posts: 2,553
Default a good level of retirement savings

Depends very much on how much you spend and how long you intend to live. In an ideal world you wouldn't be touching the principal of your nest egg and minus inflation you could theoretically live forever and never run out of cash.

Personally I don't intend to retire-retire until I'm old. But I would like to work maybe half-time starting close to my 40's. I could make that work pretty well.
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Old   #3 (permalink)
 
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Default a good level of retirement savings

The library is a good place to start. Too bad you don't give your age, to get better advice.

Carol is right to an extent. The stock market fluctuates, but over the long term it has proven to be a good investment, returning on average 10 percent per year. If you plan to retire in 5-6 years, the situation is much different than if you have 20 years of work before retiring. The point is to start early and put away savings divided among several mutual funds to be well diversified and accumulate a retirement fund through growth and dividend reinvestment.

Let me give you an example using your portfolio of $1 million that earns only 5% a year. If you retire at age 65 with a life expectancy of 30 more years, drawing out $50,000 a year would never exhaust your fund. You could withdraw $65,000 a year for the next 30 years. That assumes, of course that your portfolio is invested in good dividend paying stocks and bonds, sufficiently diversified that any short-term fluctuations are minimized. But if that portfolio earns 6% a year, very possible even in today's market with low bond yields, you would have to withdraw $72,600 per year to exhaust it. A good plan might be to withdraw no more than the dividends and interest income earned in good years and let the fund grow so that you can survive the times when the find declines. don't forget that in most cases you would also have access to Social Security income.

So make sure you are saving and let your fund grow. Provide some data such as your age, current income, amount you can save each month, the lump sum you have available,and it is easy to give you an estimate of where you will be X years from now.
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Old   #4 (permalink)
 
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Default a good level of retirement savings

Check with a broker.
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Old   #5 (permalink)
 
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Default a good level of retirement savings

Ideally $1M to $3M per person in today's dollars. In other words, as much as possible.

Your sample stock portfolio assumes that the stock market behaves the same way year after year. It does not. It could go up 20% one year, then drop 30% in another depending on the economy. It also assumes that the dividend yield will always be 5%, which it will not.

You need to learn about the different types of investments and how each behaves in good and bad economy.

I could write a lot more about this topic but you might end up being more confused. Good luck.
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Old   #6 (permalink)
 
Posts: 2,620
Default a good level of retirement savings

sorry u need a library as there isn't enough room here to start.

1000s of factors come into play.

how much u want to have as reirement 'income' depends on
life style, location, demands, taxes etc. etc.

again start your journey at a library - free education.
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Old   #7 (permalink)
 
Posts: 2,502
Default a good level of retirement savings

If you're older you and not inclined to do your own due dilligence ?
You may be (possibly) be better off with a annuity
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