Think Income While Saving for Retirement

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Have you ever asked yourself "Am I saving enough for retirement?", if so you are not alone. There are many calculators and software programs readily available online to help project what your portfolio may be worth at retirement. The problem I see with many of these tools is that they put far too much emphasis on the total dollar amount accumulated at retirement. Instead of worrying about a total amount to save for retirement, investors should start focusing on how much monthly income their portfolio will be capable of generating in retirement.

A recent study by the Employee Benefit Research Institute found that more than 40% of workers said they determined their retirement savings needs by guessing and more than one-fourth said they were not at all confident they would have enough money for retirement. Whether your portfolio is worth $200,000 or $2 million, deciding how much more you need to save, when to retire, and how much you should spend during retirement is not easy. But these questions are much easier if you have a good estimate of how much monthly income your portfolio will be able to produce come retirement.

Here at Snider Advisors we have always focused on monthly income when evaluating our portfolios as we feel this is the true measure of whether your retirement portfolio is capable of meeting your objectives. Others in the industry are finally beginning to recognize the benefits of focusing on income as well, a bill introduced in Congress in February would require 401(k) plans to give participants an estimate of the monthly income they can expect in retirement each year. An assortment of academic research suggests that this information would help investors make smarter retirement-saving decisions.

By changing the language you use in reference to your investments and switching from the capital appreciation to the cash flow mindset, the transition to living off of your portfolio will become easier to conceptualize.

To help you start thinking in cash flow terms we have created the My Financial Plan application to help you determine how much income your portfolio is currently capable of producing and whether or not it will be able to meet your income needs in retirement based on your current spending and savings habits. This tool is just a starting point, but once you begin to think in terms of projected monthly income, you are at least speaking the right language for retirement security. The next step is to find an investment plan that helps you maximize your portfolios income potential.

The intent of this article is to help expand your financial education. Although the information included may be relevant to your particular situation, it is not meant to be personalized advice. When it comes to investing, insurance and financial planning, it is important to speak to a professional and get advice that is tailored to your unique, individual situation. All investments involve risk including possible loss of principal. Investment objectives, risks and other information are contained in the Snider Investment Method Owner's Manual; read and consider them carefully before investing. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Personal Finance , Retirement

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