Investing To Meet Your Retirement Needs

You need to provide the bulk of your own income during retirement. Additionally, you would like the money set aside to be at least equal to 10 times your pre-retirement income and for the money to return at least 3% more than inflation during retirement. Unfortunately, it would take 47 years of annually saving and investing 10% of your income every year to with a 3% return above inflation to achieve the goal of 10 times your pre-retirement income. If you started working when you were 25 years old, you would have to work until you were 72.

The time to achieve the investment goal of 10 times your pre-retirement income can be lowered by assuming more risk to achieve higher returns. It can be lowered to 40 years with a 4% return above inflation and 30 years with a 6% return above inflation. From 12/31/71 to 1/31/17 the inflation adjusted annual return for the S&P 500 was 6.32%, for the 10-yr US Treasury it was 3.33% and for the 90-day T-Bill it was 0.84%.

It is clear that to meet your retirement needs you will need to start saving and investing early. You will need to save around 10% of your annual income into an investment account every year. Depending upon the time frame until retirement, you cannot invest too conservatively, but will need to invest in a portfolio of stocks and bonds or alternative assets with the appropriate allocation to achieve 10 times your annual income at the end of the time frame.

In order to understand how to appropriately allocate your portfolio, you need to have an understanding of basic probability and statistics.

 

Disclosure:

The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.

The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.

Performance data showing past performance results is no guarantee of future returns.

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