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Subject:  Re: Calculating Retirement Funds Date:  8/6/2016  4:33 PM
Author:  aj485 Number:  1728 of 1929

As I get closer and closer to retirement I am seeing there is no way short of a miracle I will make the goal of the million dollars the investment advisors say is needed for a decent retirement in my rollover IRA.

Can you cite where investment advisors are saying that everyone 'needs' $1MM in their IRA in order to retire? I don't think I've ever seen an investment advisor say that everyone 'needs' $1MM to retire. I have seen a lot of blogs, commentators, etc. use $1MM as a goal or rule of thumb, but they generally can't provide any math to validate their statements, because they just chose $1MM as a nice easy number. What someone 'needs' to retire is very specific to their situation, and depends a lot on what their expenses are and what income they will have in addition to their IRA. Any investment advisor who MAY* be worth listening to recognizes that, and doesn't give out blanket advice for an amount that everyone 'needs'.

*In general, you probably have the most motivation to be your own best investment advisor, because nobody else is going to care as much about how your investments will/won't support your goals.

My question starts with some basic facts. I will have a modest pension and Social security monthly income, so when I calculate how much money I "need" towards the unlikely goal of one million dollars is it safe to add the yearly income into the total?

I think you are going about this backwards. Start with what you will need to maintain your current lifestyle, plus any changes (plus or minus) you will be making when you retire. For instance, you won't need to save for retirement any longer, once you are retired - so you don't need to cover the amount that you are currently putting toward your retirement. On the other hand, if you will want to travel more than you currently do, then you should add some costs in for that. Don't forget to account for things like medical insurance, replacing your car every xx years and large ticket items for your house, like a new roof, or remodeling the bathroom.

Once you get a handle on how much you think you'll need to spend in retirement, then compare that to the pension and SS income you anticipate having. The gap is what you will need to cover with your IRA.

I am told I can expect about 2% income on the rollover account depending on the market conditions and lord only knows what else.

It's important to understand what these assumptions are based on. Does that 2% net assume that you are paying 25% of the withdrawals in income taxes and 1% of the account valuation each year towards an advisor? If so, then 2% a year is probably a safe assumption. But are those assumptions correct for your situation? In general, the average tax rate is probably closer to 15% - 20%, even if you are in the 28% bracket. Then, if you are having taxes withheld from your pension and SS, you may not need to have a full 25% withheld from your withdrawals.

And paying an investment advisor 1% of your account balance per year is crazy if you are only going to net 2% after paying 1% in taxes. Your investment advisor will be getting 1/4 of the total outgo from the IRA, and fully 50% of what you are netting.

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