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Question for the Money Doctors

Question submitted on Aug 20, 2012.


I''m 19, and my family believes my generation will never be able to collect social security and retire... so I was wondering, is it possible to retire on your own IRA alone?


That would be dependent upon your situation/needs at the time of retirement, but of course, it is possible. For retirees, an easy way to determine a financially appropriate time to retire is to start by taking all necessary expenses and annualizing them. This would include your base living expenses (i.e., housing, food, transportation, clothing, utilities, health care, insurances, income taxes, etc.) to determine an annual cost of living.

A second step, depending on your lifestyle, would be to determine your annual expenses for non-essential, discretionary items (i.e., eating out, vacation/travel, entertainment, "toys", etc.)

Once you have these two numbers, you would divide by 4.5%. Recent studies have shown that a 4.5% portfolio withdrawal ratio is sustainable for an investor''s lifetime based upon historical market returns without the investor having to worry about running out of money. That being said, suppose your estimated essential, non-discretionary expenses in your future retirement are $45,000 annually. At a 4.5% target "safe" annual withdrawal rate, this would equate to an IRA/portfolio of $1,000,000. Of course, adding the non-essential, discretionary expenses to the essential, non-discretionary expenses and performing the same calculation will give you a second target, based on the lifestyle you anticipate in retirement.

As always, a CPA/PFS in your area will be willing to help with these calculations. Going to can help you locate one. 

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