But getting to the point where you can pay for the retirement you want isn't easy; it requires hard work and sacrifice during your working years. For those born in the following years, retirement age creeps up by two months per year, meaning that someone born in 1955 would have a full retirement age of 66 years, two months. And without the help of Social Security benefits, most people wouldn't be able to afford retirement at age 65 without putting a dangerous strain on their retirement savings. Without the help of that high average return, you'd need to save much, much more money during your working life to get enough retirement savings built up. For example, let's say you've saved $1,000 per month (which adds up to $12,000 per year) and put it in government bonds, getting an average annual return of 2%. On the other hand, if you'd put that same $1,000 per month in stocks and gotten an average annual return of 7%, you'd have $1,212,876 saved up after 30 years. However, few retirees can reduce their expenses to the point where they can comfortably live on nothing but their Social Security benefits. As of January 2017, the average monthly Social Security benefit is $1,360. This means that your tax challenges will likely increase rather than decrease once you retire. And you should definitely budget for the taxes you'll be paying on part if not all of your retirement income.
This is part of my series outlining the importance of implementing a retirement income framework. Last year, my colleague Alex Murguia and I developed a framework called the Retirement Income Optimization Map™, which I am using in this series as an example of how to use such a framework.
The RIO Questionnaire covers several topics, including the Retirement Income Funding portion of the RIO framework, which is expressed on the Map as a series of arrows connecting the retirement assets to the retirement liabilities.
Retirement Researcher 2017
The Retirement Income Optimization Map™
This is where you assess the path to your destination.
Here you want to explore how well it all comes together, if you are “on track,” and what changes, if any, need to be made to your retirement journey. This is the financial planning portion of your RIO Map™. It is the map’s compass to help set you on your course to determine if your preferred tactics are more probability-based or safety-first.
It is about making sure that assets are used efficiently to meet goals and cover liabilities. It…