| Spring 2013 |
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| A comfortable retirement ranks high on the list of financial goals for most Americans. But market volatility makes it a challenge to stay on target — and no one can accurately predict the market. That's why it's important to focus on factors that you can control. Here are three steps that can make it more likely you'll have the money you need when you retire. |
Begin planning for retirement with at least ten years to go. Your plan will be general at first and more specific as you go.
- Estimate the income you expect to receive from all sources: a company pension, Social Security, dividends and income from assets outside qualified retirement plans.
- Create a budget — estimated amounts will do. Separate fixed expenses, such as housing and health care, from variable expenses, such as travel and leisure.
- Compare your annual budget figure to your total estimated annual income from all sources EXCEPT your retirement savings. The difference is the amount you must generate from your savings.
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There's a rule of thumb that can help you determine whether
your savings is adequate to fill the gap between your budget
and other sources of income. Plan for a 20-year retirement
and divide your retirement savings by 20 to determine,
generally speaking, how much you can withdraw each
year in retirement. This general formula is built around
these basics:
- Most financial experts recommend that you limit annual withdrawals from retirement savings to between 4% and 5%.
- If you retire at age 65, you can expect to live another 19 to 20 years, according to the U.S. Department of Health and Human Services.
Of course, this is a general rule of thumb. If your annual portfolio returns are significantly higher than 5%, you could stretch your money to last longer. If your portfolio fails to keep up with inflation and you sustain a significant market downturn while making withdrawals, your money may not last for 20 years.
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If there is a significant gap between the income you need and the income you estimate, you can revisit your strategy or rethink your goals.
If you want to boost the size of your retirement nest egg:
- Consider increasing your exposure to equities, which historically have outperformed fixed-income investments. Take this step only if it fits your risk appetite and you have the conviction to stay with your investments in a downturn.
- Save more in the years leading up to retirement. Contribute the maximum amount allowed by all tax-advantaged plans that you are eligible to participate in: The maximum annual contribution after age 50 is $23,000 for workplace savings plans and $6,500 for Traditional and Roth IRAs. Remember, spouses who do not work outside the home are also eligible to contribute.
If you want to lower your income needs:
- Postpone retirement for several years. By delaying withdrawals from your retirement savings plans, your money will have additional years of tax-deferred growth potential and you'll have fewer years over which to stretch your money.
- Consider postponing Social Security income benefits, especially for the highest wage earner in the family. Your annual benefit rises between 6% and 8% annually for each year you delay receiving benefits between full retirement age and age 70.
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There are no standard formulas for a comfortable retirement. That's why it's important to work with your financial advisor. A seasoned professional who knows your personal situation can help you determine the steps and strategies that are right for you.
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For more information on any of this issue's articles, contact your financial advisor.
This material does not constitute tax, legal or accounting advice and neither John Hancock nor any
of its agents, employees or registered representatives are in the business of offering such advice. It
was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding
any IRS penalty. It was written to support the marketing of the transactions or topics it addresses.
Anyone interested in these transactions or topics should seek advice based on his or her particular
circumstances from independent professional advisors.
A fund's investment objectives, risks, charges and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Fund. Please read the prospectus carefully before investing or sending money. For prospectus or performance data current to the most recent month end, contact your financial professional, call John Hancock Funds at
1-800-225-5291 or visit our Web site at www.jhfunds.com.
©2013 John Hancock Funds, LLC, Boston, MA
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