5 Risk Management Rules For A Prosperous Retirement: Know Thyself And You Can Meet Your Goals

Posted On April 9, 2018 1:36 pm

Now the good news is that the average social security beneficiary gets $17,000 per year, or enough to cover about 37% of one’s total costs. The system was designed to provide for 40% of a recipient’s expenses so the system is working as designed. But that means that you will likely need $29,000 per person annually from personal savings.

Which brings us to another important factor, which is your time horizon. There is a big difference between having 20+ years to save for a goal such as retirement, and having five years or less. That’s because of the 4% rule, pioneered by CPA William Bengen in 1994. Bengen’s study looked at market history going back to 1926 and found that even when accounting for the worst market crashes, and inflation, a 60%/40% portfolio of stocks and bonds would last at least 33 years if you limited your withdrawls to 4% of the portfolio and adjusted annually for inflation.

This means that for the $29,000 per year the average retiree will need by retirement you need a $725,000 nestegg. Assuming that prior to retirement you invested 100% in a low cost S&P 500 ETF (like VOO), and it achieved its average of 7.0% inflation adjusted total returns since 1871, here’s how much you’d have to save depending on your time horizon.

Years To Retirement Monthly Savings Rate (To Achieve $725,000 Retirement Portfolio)
5 years $9,825
10 years $4,085
15 years $2,250
20 years $1,380
25 years $895

(Sources: MoneyChimp, Dave Ramsey)

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Dividend Sensei
Dividend Sensei

I'm an Army veteran and former energy dividend writer for The Motley Fool. I currently write for both Seeking Alpha, Simply Safe Dividends, and DividendSensei.com My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams, and enrich their lives. With 22 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and income streams. I'm currently on an epic quest to build a broadly diversified, high-quality, high-yield dividend growth portfolio that: 1. Pays a 5% yield 2. Offers 7% annual dividend growth 3. Pays dividends AT LEAST on a weekly, but preferably, daily basis

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