Retire Rich

Developing a plan to make your golden years brighter

understand the process and decide upon an appropriate asset allocation.

For this palette, Martin lists a number of factors: life expectancy, years to retirement, desirable rates of return, risk tolerance, and so on. For each of these factors, answers must be entered in various columns.

Each column, in turn, is headed by a color: red, orange, yellow, green, and blue. Answers under the red column indicate that a high allocation toward stocks is desirable: a long life expectancy, for example, or many years to retirement. Across the form, answers in the blue column suggest fewer stocks or more bonds: low risk tolerance, for example, or a retirement fund that’s already so large there’s no need to load up on stocks.

Each answer is shaded in the appropriate color so that Martin’s clients can quickly see the pattern that emerges. A client whose answers are all shaded red, with a few oranges and yellows, would be well served by an allocation heavily tilted (75% or more) toward stocks. Another client, with answers shaded in all hues, might be a middle-of-the-roader (yellow), instead, with a 35% to 55% allocation to stocks.

Once you have a true picture of your retirement needs, you can use art as well as science to design a personal road map.

These are a few methods that you can use to determine your retirement financing needs. The most important bit of advice: Get started now.

Find out where your stand:
1 Current annual income (you and your spouse combined) $80,000

2 Desired retirement income $60,000

3 Estimated Social Security and pension income $20,000

4 Income needed from personal savings: Subtract (3) from (2) $40,000
(includes tax-deferred plans and portfolio investments)

5 Desired retirement age (Make note of
the income multiple that fits your wishes.)
Retirement Age 50-54 55-59 60-64 65+
Income Multiple 26 23 20 17
(For our model, we’ll use 20.)

6 Necessary personal savings: Multiply (5) by (4) $800,000
Number (6) is your retirement savings goal.
Now, determine how to get there:

7 Total personal savings now (IRA, annuities, insurance policies, etc.) $250,000

8 Approximate years until retirement
Years To Retirement 8 12 16 20 24
Growth Multiple 2 3 4 5 6
(We’ll use 8 for a multiple of 2 in our model.)

9 Estimated value of current personal savings at retirement: Multiply (8) by (7) $500,000

10 Savings shortfall: Subtract (9) from (6) $300,000

11 Approximate years until retirement
Years To Retirement 8 12 16 20 24
Savings Factor .100 .070 .045 .032 .025
(We’ll assume 8-a factor of .100 in our model.) .100

12 Annual savings necessary: Multiply (11) by (10) $30,000

Source: Black Enterprise Wealth Building Guide

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