Friday , 23 June 2017


How Much Investment Income Do You Need to Retire? Here Are Some Guidelines

Here’s an interesting rule of thumb that most retirees and would-be retirementretirees would do well to adopt.

The above introductory comments are edited excerpts from an article* by Jonathan Chevreau (findependenceday.com) entitled The $1,000-a-month rule for retirement.

The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!)and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.

Chevreau goes on to say in further edited excerpts:

This rule of thumb, developed by U.S.-based financial planner Wes Moss, suggests that for every $1,000 in monthly income you want in retirement, you need to have saved $240,000, assuming you are at least 60-years-old (although it would be a useful benchmark even for those younger than 60 and who aspire to an early retirement) and your mortgage has been paid off.

To put the above in specific terms:

  • if you want $2,000 a month from your investment portfolio (that is, investment income that is above and beyond pension income, government pensions like Social Security (in the U.S.) or the combination in Canada of CPP/OAS), you need to amass $480,000,
  • if you want $4,000 a month from investment income, in addition to the usual alternative sources of income, then you need to have saved almost a million in liquid investments: $240,000 times four is $960,000,
  • if you want $10,000 a month, then you’d need $2.4 million, etc.

Moss uses this handy guideline in his practice (a Georgia-based investment firm called Capitalmossretirement-199x300 Investment Advisor, of which he is chief investment strategist) as well as on his popular financial radio show, Money Matters. It is also his number one tip in his recently published book...You Can Retire Sooner Than You Think: The Money Secrets of the Happiest Retirees.

Moss’ rule is based on a 5% annual withdrawal rate, which means that $240,000 in investments would spin off $12,000 a year in some combination of interest, dividends and other income (which Moss calls distributions). Divide the $12,000 by the 12 months of the year and there’s your desired $1,000 a month of income.

(It should be noted here that the above 5% is close to the 4% safe withdrawal rule made famous by financial planner William Bengen who determined that retirees could withdraw 4% a year from a balanced portfolio and not run out of money for at least 30 years.)

Moss suggests that you can get:

  • close to 5% in certain high-yielding dividend stocks (telecom or utility stocks for example, even REITs),
  • perhaps 2% or 3% from fixed income, depending how much risk you want to take, and
  • another 1% to 3% from growth or capital gains on average over the long term even though they can fluctuate or even be negative year by year.

Moss assesses that, while the above approaches may involve cutting slowly into capital in worst case scenarios, as long as your income investments are generating by themselves 3% or 4%, that such nest eggs would easily outlast the average 30-year retirement time frame.

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[As a matter of interest below are some quotes from a previous article** by Chevreau entitled How not to go about reirement that outlines the current situation regarding retirement in the U.S. and Canada:

U.S.

  • “30% of American have less than US$1,000 in savings and investments
  • 75% have less than US$30,000 saved in their retirement accounts…
  • 56% have not tried to calculate how much they need for retirement
  • average expected retirement age has risen from 60 in the mid-1990s to 67 today…
  • 35% over 65 rely entirely on social security for their income and
  • 40% of baby boomers plan to work until they die (according to a 2010 AARP survey)”

Canada

  • “68% of not-yet-retired Canadians 50 or older have yet to discuss their post-career lives with their partners
  • 86% are reluctant to discuss health issues
  • 81% don’t want to raise the topic of what happens if one of them dies sooner than anticipated
  • 67% haven’t discussed what they will do together in retirement and, astonishingly,
  • only 36% have discussed how to finance retirement and where they would live once it occurred. (Source: RBC survey)”

“The way I see it, those of you without a solid savings plan are either going to have to work a very long time into old age or hope for “Freedom Six Feet Under” before you run out of money. To the people who have saved only $1,000 or $30,000, just how long do you expect that money to last? If this is you, perhaps you should take up skydiving, stop exercising, start smoking and eat nothing but junk food.

Either that, or show this blog to your spouse and start having a serious chat about what your joint retirement looks like – and I can tell you from where I currently sit, it can look great, but only if you get serious about it.”]

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

*http://www.findependenceday.com/cms/2014/08/06/the-thousand-bucks-a-month-rule-for-retirement/ (© 2014 findependenceday.com) **http://www.findependenceday.com/cms/2014/07/23/how-not-to-prepare-for-retirement/

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