Preparing for Retirement: CNBC Financial Planner Says You Need $2.5 M!
On a recent show on CNBC, a financial planner surprised everyone when she said a person should have about $2.5 million in his or her retirement plan. Of course, those on hand were aghast by the comments, including myself. But having since thought about it, it does make some sense.
Four Percent Rule No Longer Sufficient for Retirement Savings?
The thing is that the old rule used by financial planners that those in retirement can withdraw four percent annually to live for another few decades simply doesn’t pan out for the majority of people, given their retirement savings and retirement plan.
The problem with the four percent rule and the savings process are the extremely low interest rates and resulting bond yields that make the retirement plan difficult for many.
Based on the low interest rates offered, even a million dollars in a retirement plan could be on the low side, especially if you are expecting a nice and long retirement, as long as interest rates do not pop higher. If this is a low rate era, then you better start pumping up your retirement investing strategy.
At, say, two percent, a million dollars yields you only $20,000 annually, which is nothing in these times. Upping your retirement plan to $2.0 million yields $40,000, which, along with added withdrawals, would give you a comfortable retirement in the sun.
The reality is that the low yields that have been around for more than five years don’t help the income investor and those looking to build up their retirement savings. That’s the reason why the stock market has been as strong as it has been, as there really is a lack of viable alternatives for building up your nest egg other than stocks.
How to Boost Your Retirement Nest Egg
Even if you don’t like the higher-risk growth stocks, you could make decent yields and capital gains simply by buying the banks, utilities, and other dividend-paying stocks. This has been the case since the Great Recession in 2008 and continues to be a viable option for building up your retirement plan. That is, of course, unless you have millions in savings to count on.
If you are decades away from retirement, you can still try to amass the wealth required for your golden years. You don’t have to be reckless and gamble on speculative investments. You can simply buy the time-tested blue chips and consistent dividend-paying stocks.
So unless you want to freeze during the winters because your retirement plan was underfunded, you better look at building it up. You will likely not require $2.5 million, but you will need a different approach versus simply investing in low-yield instruments.