How Much More You'll Need for Retirement
(3 of 5)
How Much More You'll Need for Retirement
Compare your expected pension and Social Security income with the amount of income you think you’ll need. Determine whether or not your current investments will cover the difference between the two figures. Remember that you probably won’t need the entire lump sum of your retirement costs the minute you retire. More than likely, your investments will continue to grow during your retirement.
Things To Know
- Determine whether your current investments will cover the difference between what you will have from your pension and Social Security, and what you will need.
Be careful with your assumptions
Many Web-based programs demand a major assumption: the return you expect from your investments. Those with stock-heavy portfolios may be eager to plug in high numbers based on what the S&P 500 or other indexes returned at certain times, but those figures might not be accurate.
Actual historical returns
Since 1926, large-company stocks typically have returned a more sedate 10.5% per year, according to Morningstar’s Stocks, Bonds, Bills, and Inflation. Investors retiring in 10 years or sooner should assume an even lower return—more like 8% per year. It’s always better to use conservative projections and be surprised on the upside.
Intermediate-term bonds returned 5.0% per year, on average, between 1926 and 2021, a fair return to use for your bond positions. For cash, use the 3.3% average return of Treasury bills.
