Are We There Yet?

Bill Parrott |

It’s vacation time and right now millions of people are crisscrossing the country in route to their favorite destination.   The top three U.S. destinations for this year are the Grand Canyon, Maui and Yellowstone according to U.S. News & World Report.

It’s easy to know when you have arrived at your vacation destination because there’s a big sign at the entrance welcoming you and your family.   You probably spent months, maybe years, planning your adventure working with a travel agent or doing it yourself.  Regardless, you’ve invested time, energy and dollars to make sure your trip is a success. 

The key ingredient for a successful trip is the destination.  Once you decide where to go everything falls into place.   The end point is now the starting point.  When will you go? How will you get there?  How long will you stay? What will you do?  These are all questions you can now answer.  With these inputs you can now determine the cost of your trip.  

Americans are pretty good at planning a vacation not so much their retirement.

Retirement is an unknown journey for many.  How do you know when you’re ready to retire?  Will there be a big sign at the entrance of your driveway informing you today is the day you can retire?  Will it say you’ve arrived at your retirement destination?  I doubt it.

Is it possible to calculate your retirement number?   I believe it is.  The first step is to calculate your family’s household expenses.  If your expenses are $100,000 per year, you’ll need assets that will generate income to cover your expenses.   If your assets are earning 4%, you’ll need assets of $2.5 million. 

It’s likely you’ll receive Social Security during your retirement.  Social Security will lower the amount of money you’ll need to save for your retirement.   If your Social Security is $30,000 per year, you can subtract this number from the $100,000 in annual expenses to arrive at a target of $70,000.  You’ll now need assets $1.75 million if your assets are earning 4%.  

If your fortunate enough to receive a pension, then it lowers the assets you’ll need to retire even further.  Let’s say your annual pension is $25,000.   Your $100,000 annual expenses have been lowered by $55,000 with Social Security and your pension.  Your new expense number is now $45,000.  A 4% earnings rate will give you an asset goal of $1.125 million.

It does not matter the age you obtain these assets because once they’ve been acquired you can retire at any time.

To retire on your terms, you can lower your expenses or increase your assets.  Are you there yet?

“Life is either a daring adventure or nothing.” – Helen Keller

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.

July 19, 2016