Phyllis Keller

Phyllis Keller

There is a fine line between living in the moment and saving for retirement. The balance is the challenge. Fleeting thoughts, or maybe not so fleeting, are vacations abroad, a dream car, a ranch, and helping the adult children with the purchases of their first homes.

This balancing act begins at any age. My adult children are saving for houses, and I am saving for travel coupled with educational opportunities.

My parents taught me saving habits that began as a small account at our local savings and loan bank. College courses, being married to a CPA and CFP Professional, and working at an RIA firm have certainly enhanced my savings savvy. Now my savings are more traditional with the typical 401k plan, IRAs and other accounts consisting of mutual funds, stocks, bonds and cash.

The juncture is here of adding a hard retirement date to my calendar. How much money do I want to spend in my digital nomad life? Do I want to leave money for my children to inherit?

A basic withdrawal rate of your investments falls in the 4%-5% range. However, inflation can complicate this rate. Consider this example: Ignoring taxes for simplicity sake, if a $1 million portfolio earns 5% each year, it provides a $50,000 annual income. However, if annual inflation pushes prices up by 3%, more income of $51,500 would be needed the following year to preserve purchasing power. An additional $1,500 must be withdrawn from the principal to meet expenses, which reduces the portfolio’s ability to produce income.

This can accelerate the depletion of the portfolio and you could find yourself not having the savings you need for the 20 or more years you live in retirement.

The average 65 year old can expect to live for 19 more years according to the National Center for Health Statistics Data Brief. Additionally, 1 in 5 men who have reached age 65 will live to 90 and among women, it is 1 in 3.

We just met with our CFP Professional, as we prefer an independent opinion. He built into our retirement model our current salaries. This is an extremely important cornerstone. What major expenses are in our future? We could have two more weddings, increased travel and more real estate ventures. Additionally, there is the abyss of health care. However, some of our expenses such as work-related expenses, (commuting, clothing, dry cleaning, payroll taxes and retirement savings contributions), will decrease.

So, will it take our current annual salaries to live the type of retirement we want or can we live on 60-80% of our current salaries?

My first goal is to cut some expenses so I can increase my travel budget. I also do not want to make the mistake of spending extravagantly early in retirement, as the market will continually have its ups and downs.

However, I will live a bit more in the moment, as time is passing quickly.

The bottom line: You want to maximize the ability of your personal savings to provide annual income during your retirement years, and close the gap between your projected annual income needs and the funds you will receive from Social Security.

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Phyllis Keller is the chief information officer for KMH Wealth Management and Keller & Associates CPAs.

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