Wes Moss, a fiduciary financial advisor and retirement expert, shares practical methods to determine how much you really need to retire comfortably. He emphasizes the importance of calculating income sources like Social Security and pensions alongside personal spending goals. The discussion also tackles how fear-mongering headlines can skew financial perspectives, promoting a long-term view instead. Plus, Wes answers listener questions, offering insights into navigating financial anxiety amid troubling news.
Understanding reliable income sources and expenses is essential for calculating the necessary savings for a comfortable retirement.
Engaging in fulfilling activities post-retirement enhances personal satisfaction, making the planning of these core pursuits integral to retirement success.
Deep dives
Understanding Retirement Needs
Determining how much money is needed for retirement can be a daunting task, but it starts with understanding income streams and expenses. The FTG method, which stands for 'Filling the Gap', is introduced as a practical approach to estimate the necessary retirement savings. By first summing guaranteed income like Social Security and pensions, and then subtracting that from the desired monthly expenses, individuals can easily calculate the gap that needs to be filled by their investments. For example, if someone requires $8,000 monthly but only receives $5,000 from guaranteed sources, the remaining $3,000 would indicate a required annual funding of $36,000 from retirement savings, highlighting that $900,000 is needed to generate that income using the 4% withdrawal rule.
Calculating Investment Growth
Understanding how regular saving contributes to building wealth over time is crucial for effective financial planning. A practical rule of thumb shared illustrates that saving $1,000 per month at a 7% annual return over 30 years can lead to about $1.25 million. Alternative scenarios demonstrate that contributing $2,500 monthly for 20 years achieves similar growth, providing different pathways to accumulate wealth for retirement. Essentially, consistent saving, regardless of the amount, coupled with the power of compound interest, can make reaching the goal of a million dollars seem attainable over a manageable time frame.
Identifying Retirement Activities
Engaging in meaningful activities post-retirement is essential for personal fulfillment and happiness, and planning these activities in advance can lead to greater satisfaction. The concept of core pursuits encourages individuals to identify interests that can enrich their lives during retirement, rather than solely focusing on financial aspects. Research indicates that retirees with a structured plan for their daily activities experienced higher satisfaction levels, suggesting that having a visual roadmap can facilitate smoother transitions from work to retirement. As individuals consider their future, exploring hobbies and potential income streams can help create a rounded and fulfilling lifestyle.
Evaluating Investment Strategies
When considering secondary income sources, potential investments like rental properties and dividend-yielding ETFs need careful comparison regarding their expected returns and required effort. Rental properties can yield significant returns, yet they often require intensive management and upkeep, whereas dividend ETFs offer simplicity and less hands-on management. The cap rate, which assesses the revenue generated from rental income relative to property value, raises considerations for investment viability; typically, a cap rate between 5% to 10% is considered reasonable. Ultimately, the choice between real estate and ETFs hinges on personal preferences, management capacity, and market conditions.
How much money do you need to retire? Fiduciary financial advisor Wes Moss outlines two straightforward methods to determine the amount you'll need for a comfortable retirement. Wes walks you through factoring in income streams like Social Security and pensions, alongside your individual spending goals, to arrive at your target number. Also, "doom and gloom" headlines can often dominate financial news. Should you listen? Wes shares his perspective.
Plus, Christa shares your #AskWes questions and Wes gives his take. All this and more on the February 25, 2025, Ask an Advisor episode of the Clark Howard podcast. Submit your questions at clark.com/ask.
We hope you enjoy our weekly Ask An Advisor episodes, in which Christa and Wes discuss investing and retirement savings in depth. Let us know what you think in the comments!
