Retirement Catch-Up Part 1 1/14/07

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Retirement Catch-Up Part 1 1/14/07

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC

Retirement Catch-Up Part 1

“Retirement Catch-up Part I”



The start of the New Year is a great time to assess how you are tracking towards your retirement goals.  This is particularly true if you intend to retire within the next ten years. I will focus on this particular time frame in this column.  Is there a quick way to determine if you are on schedule?  Follow these steps:

  1. Write down what it costs to run your household on an annual basis.  Be sure to include periodic bills such as your auto and home insurance, property taxes, life insurance, travel and so forth.  Also allow for unexpected expenses such as home repairs and periodic purchases of a new car. 
  2. Next, adjust these numbers based on how they may change during retirement.  For example, commuting expenses and clothing costs may go down while travel costs may rise.
  3. Now that you have developed your annual retirement income needs baseline, subtract any expected retirement sources of income such as Social Security or company pension.  The Social Security Administration sends you a report annually that estimates your retirement income and you should be able to get your company’s pension estimate from your Human Resources Department.
  4. The amount left after subtracting retirement sources of income in step #3 must come from your other sources such as personal savings, 401k and other retirement plans.  To determine the amount of investment capital you will need here, multiply your answer in step #3 by 20.


Let’s examine a quick example.   You hope to retire in eight years and you have determined that you will need $80,000 per year.  Your Social Security is expected to be $20,000 per year and you will receive a small pension of $10,000 per year from your employer.  Subtracting these from your income need suggests that you’ll need your personal investments and other retirement plan investments to produce the remaining $50,000 per year.  By multiplying $50,000 times 20, you determine you will need to accumulate $1,000,000.  This $1,000,000 should produce an increasing income stream that will ward off the effects of inflation and allow a cushion of cash for unexpected emergencies. 


Now compare your final answer to the current value of your investments to get a picture of whether you are on track or not.  Obviously, this answer is not exact but if you are very far off track, you should take immediate action!  Go to the Resource Center at www.welchgroup and perform a more detailed retirement analysis or contact your financial advisor and have him or her review your situation and develop solutions.


If you have a few years left until you retire, you’ll have more options for closing the gap between what you have and what you need.  Here are a few choices to get you thinking:

  • Increase the amount you save.
  • Continue working.
  • Maximize contributions to tax-favored investment plans.
  • Reduce your lifestyle.
  • Invest for higher returns.


Next week, I’ll examine each topic in detail and suggest some ways to make them work for you.