## The Formula You Are Using To Determine How Much To Save For Retirement Is Broken

If you are trying to figure out how much money you need to save for retirement, there’s an easy rule of thumb that you can use: simply multiply your expected annual expenses in retirement by twenty-five.

For example, if you expect to spend \$100,000 annually once you’re retired, you’ll want to have a \$2.5 million portfolio saved up. If you’d like to play around with the numbers to estimate your own retirement needs, you can use this simple retirement calculator.

This retirement savings rule of thumb is based on the 1998 landmark study conducted by Carl Hubbard, Philip Cooley and Daniel Walz, in their seminal study known as the Trinity Study. They built on the 1994 work of William Bengen, who originally coined the ‘4% Rule’.

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The Trinity Study evaluated safe retirement withdrawal rates, and found that 4% was sufficient for the majority of retirees. A safe withdrawal rate simply refers to the amount of money that can be taken out of an account and allow you to reasonably expect the portfolio to not fail, or run out of money. In this case, the 4% withdrawal rate refers to the amount of money that will be withdrawn from the balance of the retirement portfolio in the first year of retirement. In subsequent years, the balance withdrawn will simply be an inflation adjusted number based on the total dollar amount withdrawn the year prior.

The Trinity Study has become so well-known, that it has been adopted by hopeful retirees from all walks of life, including those hoping to retire early. The FIRE movement (Financial Independence, Retire Early) is a lifestyle movement with the goal of allowing individuals to retire as early and quickly as possible.

However, one detail that the movement is getting wrong and completely missing, is the fact that the Trinity Study’s 4% rule of thumb was based on a 30 year retirement period. This time horizon was determined to be on the conservative end of retirements by the authors of the study. If you work until you’re 65, having a 30 year retirement seems pretty reasonable. I don’t think many would argue that living until the age of 95 is a short life by any means.

The problem arises due to the FIRE movement seeking a much longer retirement period. If you retire at 45 years old, you may need a portfolio that will survive another 45 to 50 years in order to avoid running out of money. In this case, making a judgement error could end up meaning re-entering the workforce at an advanced age. For this reason, relying on a 4% withdrawal rate is an extremely risky decision if you plan to retire early.

This begs the question of what a more appropriate withdrawal rate is if you plan to retire early. The answer is that it depends. In general, the study found that as the balance between stocks and bonds shifts towards equities, a portfolio is more likely to withstand the test of time. So inherently, your risk tolerance will need to be factored into the equation. If you are comfortable with 75%+ of your portfolio being in stocks (and stomaching the increased risk), you might be safe with a 3% withdrawal rate. If you prefer less volatile investments, a lower rate is more conservative.

This is bad news for a lot of you hoping to retire early.

For one, it would mean having to save an additional \$833,000 if you hope to spend \$100,000 annually like in the example above. Unless you are an exceptionally high earner, it’ll likely mean having to work for several additional years or having to continue to earn additional income even after retirement.

With the buzz surrounding the gig economy and the seemingly endless ‘side-hustle’ opportunities available, this seems like a surmountable hurdle. The deficit in retirement savings required also highlights the impact of having to save for retirement as efficiently as possible.

This means fully taking advantage of your 401(k), IRA, and other tax-advantaged accounts. It also means evaluating whether it makes sense to refinance your student loans or not. Avoiding credit card interest fees and other forms of high interest debt are a must. In addition, maximizing your earning potential will also help safeguard your nest egg from market turbulence and economic uncertainty.

Just as important, you’ll also want to avoid making costly investment mistakes. One that comes to mind is erroneously viewing your vehicle as a sound investment. Another pitfall is picking individual stocks in lieu of index funds or ETFs. To set yourself up for success, minimizing fees and diversifying your investments is the name of the game.

Does all of this mean that the 4% rule is futile and should be completely ignored? Absolutely not. The authors of the Trinity Study ran simulations to find what the safe withdrawal rate would be for varying time horizons. But at the end of the day, they were just that: simulations. Even if you only had an expected 15 year retirement and used a conservative withdrawal rate, there is always the chance that your portfolio could fail. The same is true in the opposite direction: there’s always the chance that a 4% withdrawal could be sufficient for a 50 year retirement.

The question you have to answer is whether you are comfortable taking that risk. I know I’m not.

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Camilo Maldonado is Co-Founder of The Finance Twins, a personal finance site showing you how to budgetinvestbanksave & refinance your student loans. He also runs Contacts Compare.

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## What Makes People Truly Happy in Retirement?

What makes people happy in retirement? That’s the question Michael Finke has been researching for many years now. He’s the chief academic officer of the American College of Financial Services, and was one of 16 experts who spoke on at TheStreet’s Retirement, Taxes, and Income Strategies symposium held recently in New York.

And he now has the answer.

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But first a little background. Finke has been researching the question of what makes people happy in retirement because he wants to know to what extent does what people do with their money make them happy in retirement. “Is it better if they have a lump sum? Is it better if they have a pension, or some kind of annuitized income?”

And what he found was this: There seems to be three pillars of happiness in retirement. The first pillar is money, which he says is good news for those of who are actually saving for retirement. “You are happier if you have more money,” Finke said. “So money is a pillar.”

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And it shouldn’t be any surprise, he said, that health is also a pillar of happiness. “You can have all the money in the world, but if you’re not healthy, you’re not actually gonna enjoy your retirement,” Finke said.

But most of his newest research is on social well-being. For instance, the extent to which you have good relationships with your spouse is is one of the strongest predictors of happiness in retirement. “So make sure you invest in that as much as you’re investing in your 401(k),” Finke said.

The other predictors of happiness in retirement are, according to Finke, friendships and the depth of friendships and the number of friendships that you have with other people. “And even when we look at spending, what we see is that social spending is what really makes people happy,” he said.

Spending money on all sorts of other stuff that we think might make us happy in retirement doesn’t really make us that happy. “It is social spending that makes us happy,” Finke said.

So that’s the foundation of his research in life satisfaction in retirement. “You have to have all three of those if you’re going to be satisfied, and all of them are an investment,” said Finke.

What is an investment in retirement? According to Finke, an investment is anything that requires a sacrifice during your working years in order to build value. “When you save for retirement, it means that you’re living a little bit less well,” he said. “You’re setting money aside that you could have spent today, and you’re (going to) spend that money in retirement.”

Health is an investment, too, said Finke who recalled his early days as a food consumption researcher. “The whole reason I got into finance was because I took a doctoral class in investments because I wanted to understand investments theory, but my theory was that the same thing that motivated people to save money for retirement is the thing that motivated them to engage in healthy behaviors like eating better or exercising, and so that’s an investment in your future as well,” he said.

Relationships are an investment as well and it takes ongoing investment and time and resources to be able to maintain those friendships “so that you can actually draw from them in retirement,” said Finke.

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And if you haven’t made those investments — and men are especially bad at making investments in friendships — you’re not going to be as happy in retirement, he said.

Women, by contrast, invest more. “Women have more deep relationships than men do by the time they get to retirement,” he said. And that, said Finke, actually creates a big issue because very often women have friends outside of the relationship, and they want to spend time maintaining that investment with their friends.

A man’s social circle, by contrast, is at work. “And by the time they retire, they’re relying more on their spouse,” Finke said. “In an opposite-sex couple, they’re relying on their spouse for that, to spend time with them, to go on vacation with them and have lunch with them, and sometimes that creates a bit of friction in retirement.”

Finke also noted that married retirees, in general, are happier, but the happiest group is women who are newly divorced between the ages of 60 and 65. “That’s the happiest group,” he said.

Got questions about money, retirement and/or investments? Email Robert.Powell@TheStreet.com.

## 60 Seconds: Yes, You Need a Will. Like Now. – TheStreet

From Aretha Franklin to Prince, so many famous, wealthy people have died without having a will.

It’s nuts. Their heirs may have to spend an exorbitant amount of time fighting the courts – and each other – to determine who gets what.

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You can’t take your assets with you. Get it? Everyone should have a will – and you don’t need to be famous or wealthy to need one.

Give me 60 seconds and I’ll tell you why.

Granted people often are uncomfortable talking about their mortality.  And rockstars Amy Winehouse and Kirk Cobain, who both died at 27, probably presumed they were way too young to even need one.  But they had millions at their death.

## Not Just for the Rich and Famous

Regardless of your age, net worth or level of fame, you are doing your heirs a HUGE favor by taking care of everything now, says Robert Westley, CPA/PFS member of the American Institute of CPAs Personal Financial Specialist, PFS, Credential Committee.”

(Unless, of course, you enjoy watching your heirs fight over your stuff rather than resting in peace.)

So start making a list of everything you have — include investment accounts, artwork, even those vintage cars in the garage.

And if you have young kids, don’t forget to pick their guardians. You don’t want your chronically unemployed brother to end up with them.

Creating a will doesn’t have to be a complicated process. You just need a few key documents and you most likely can get what you need from sites like Quicken WillMaker or LegalZoom.

If you have substantial wealth, then you probably are going to need an estate plan, maybe even a trust, and an attorney to help carry out your wishes.

Big note here: A bunch of your assets are not even controlled by your will.  Anything with a beneficiary designation – like your 401(k), IRA or insurance policies – is dictated by those designations, says Westley.

They override your will. So if in your will you state that you want your kids to inherit your IRA but your ex-spouse’s name is still listed as the beneficiary because you forgot to update it, guess who’s coming in on a windfall?

So check all that now.

And drop the excuses. This is not just for old rich people.  We all know that you can get hit by a bus while you are walking on the street or even reading this.

## You Need to Revisit

And finally this is not a one-and-done, says Westley.

“Many individuals assume that once they’ve completed their estate plan and will there is no need to revisit it. The reality is, estate documents are static, while an individual’s life is dynamic and ever-changing,” he says.

People die, get divorced, buy new stuff, sell old stuff.  So your will needs to be revisited, often.

So get on it, and for more tips, follow me @tracybyrnes.

## Why 8,000 Is The Most Important Number For Your Retirement Plan

My Uber driver and I struck up a conversation about the Orlando traffic and weather. The chatter soon drifted into stories about his experiences living and driving in Florida. I soon learned my driver’s name was Bob.

Raising his voice, and turning to get a look at my face in his rearview mirror, Bob asked me, “How old do you think I am?”

I am always nervous to make such a guess — uttering a number either too old, or too young, can chill the air.

But, before I could make a guess, Bob volunteered his age with a wry smile, “I am 81 years old and still working! Heck of a thing, don’t you think? 81, and still working.”

Bob’s voice trailed off, as he gently turned the wheel steering his Camry off the highway into the driveway of my hotel. At a volume almost too low to be heard, he muttered, “I had no idea it would be so long.”

Bob’s eyes darted to the rearview mirror again staring back at me. He replied flatly. “Retirement.”

Bob and millions of others are experiencing the new retirement. Yes, there have always been older people, and millions have retired before us, but retirement today is different.

There are many factors that can describe how life in retirement has changed. But, perhaps the biggest difference is time.

Social Security was enacted in 1935. More than an entitlement program, Social Security culturally framed how we think about retirement — particularly when to retire. While the ‘when’ of retirement, 65 years old, was simply a product of legislative negotiation, the number is now engraved into our social consciousness with nearly the same indisputable truth as Newton’s law of gravity. In the 1930s retirement was a story about a brief period of life that offered much needed rest from a life of work. As I observe in my book, The Longevity Economy, shortly after World War II, with the advent of pensions, social security, and modestly longer life, the retirement story framed older age as a short time filled with well earned relaxation, leisure, and family.

But, as my 81-year old driver keenly observed, retirement is very likely to be longer than planned and include more than simply play and rest. According to the Social Security Administration, an American male at 65 years old is likely to live an average of another 20 years. Likewise, an American woman, on average, is likely to live approximately another nearly 22 years.

Numbers alone, such as the cold clarity of 20 years, rarely provide insight. Instead, stories that explain what the numbers may mean can give context and inspiration to comprehensive retirement planning. So how might the 20-plus years in retirement be imagined?

Translating years to days, two-plus decades of retirement is about 8,000 days. 8,000 days is also roughly the same amount of time from birth to legal drinking age – 21 years old. Put another way, life between 21 years old and what many might call midlife in their later 40s, is another 8,000 days. And, from midlife, to the seemingly preordained retirement age of 65 years old, is – you guessed it – about another 8,000 days.

The point is retirement is not a brief period of life after full-time work. Rather, retirement is equal to one-third of your adult life.

Moreover, life in retirement is equal to other major life stages that benefitted from countless people, institutions, media, advertising, social norms, and more that guided how you lived in, and moved from, one phase of life to another. And, during each of those 8,000-day periods there were many transitions as well as planned and unplanned events that punctuated life.

Unlike other life stages, there are far fewer guideposts to help navigate the later one-third of adult life. Images of golf courses, bike trails, cafés, beaches and other trite imagery often found in retirement brochures may provide dreams and inspiration to some, but 8,000 days sitting at a café is not realistic for most. And not even desirable for many. Why should we assume that retirement, another 8,000 days of adult life, should be somehow more predictable, or any less filled with transitions, celebrations, and revelations, than any other life stage?

Viewing retirement as a full, long 8,000 days stimulates the imagination and raises many questions about later life.

There is the seemingly singular retirement planning question that becomes even more critical when realizing that there is the real possibility that our lifespan could out live our wealth span. How much money will be needed, not for a brief time, but for a much longer time than most of us imagine?

Then there are the less obvious considerations that are not typically part of our retirement planning story. Here are just a few.

What will we do with all that time – work part-time, play, travel, learn something new, remarry, volunteer, provide care? Have we made the plans, and established the connections, and formed the relationships necessary to engage in those activities before punching-the-clock one last time and entering into retirement?

Where will we live? In the previous 8,000 day periods of life we may have moved at least one or more times. Why shouldn’t we assume that we might move once, twice or more in older age as our preferences, health, and perhaps finances demand?

Retirement planning for most has been about numbers – savings and the amount of money necessary to ensure financial security through the years – certainly not incorrect, but woefully incomplete. Reframing retirement for what it is, one-third of adult life forces us to realize that there are far more opportunities, and challenges, than our current story of retirement planning includes.

8,000 days of retirement. As my 81-year old driver Bob might say, “heck of a thing.”

I lead the Massachusetts Institute of Technology AgeLab (agelab.mit.edu). Researcher, teacher, speaker and advisor – my work explores how global demographics, technology…

## Too Many Americans Will Never Be Able to Retire

Traditionally, Americans could look forward to a comfortable retirement. After four decades in an office or a factory, sometime in their 60s they would lay down their burdens and enjoy a final couple of decades with time to relax, spend time with family and friends, and reflect on their life. But since the financial crisis, older Americans have been increasingly staying in the workplace……

Source: https://www.bloomberg.com/opinion/articles/2019-01-23/america-needs-more-young-workers-to-support-aging-population

## The Fears And Anxieties Of Retirement

As I sit here drinking my morning coffee, I find myself wondering about the thoughts on the minds of my clients and other prospects that I’ve met over the years. The issues for many are the same: anxiety and fear of planning for retirement or being retired. When considering those fears and anxieties, 10 questions seem to surface most often……….

## The Best Places To Retire In 2018

With millions of Baby Boomers turning 65 each year, the massive generation is redefining retirement. Since half of boomers tell pollsters they expect to work at least part-time in retirement, the term is no longer synonymous with an end to paid employment. One thing retirement does mean to a large majority of boomers: the freedom to choose where they want to live, without regard to the location of a full-time job or the best school district.

Accordingly, Forbes presents its new list of The Best Places To Retire In 2018. In it, we highlight 25 places of varying size and character across the country, all of which we believe offer excellent retirement value—that is, a high quality of retirement living at an affordable price.  (After all, while you may want to work part-time in retirement, your goal ultimately is to be able to live well without a regular paycheck.)

A majority of our choices are in warm or moderate climates; that’s because those retirees who move from one region to another tend to head for the sun. But we also recognize that many retirees opt for shorter distance moves or chose new regions based on where their kids reside. So this year’s roster includes entries in 18 states in all four continental time zones. If frigid winters don’t bother you, Fargo, N.D.. has made our best list for the eighth straight year. Other cold spots on this year’s list include Colorado Springs and

For the complete list, click here. Our list is in alphabetical order. In effect, every entry is tied for No. 1. So Wenatchee, Wash. is just as worthy as Asheville, N.C..

Nine of our picks were also on last year’s list. Others have been on previous best lists, or on Forbes’ specialty retirement lists, including the most scenic retirement places; the best places to live without owning a car; and the best spots for pursing your individual passions, from the arts and learning to fine dining to land or water sports.  Absolute newcomers to any Forbes retirement list include Boone, N.C., Sun City, Ariz. and Vancouver, Wash.

There are many reasons why towns may appear on or disappear from our list, and there are close calls. Every year we look at more cities, and so the competition intensifies.  This year, we looked at data on more than 600 cities drawn from every state, as well as the District of Columbia.

Since the focus of this best list is retirement value, the most significant factors we weigh involve money. Among them: median home prices, the cost of living compared with the national average and state taxes. These factors largely rule out expensive Northeast and  West Coast cities, although the list does include Pittsburgh, Pa. and two cities in Washington State—Vancouver and Wenatchee.  (Note: If you can handle sky high taxes and housing costs, New York City and San Francisco both appear on our specialty lists of places to pursue your passions in retirement and places to retire without a car.) Read more