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Am I Ready for Retirement?
Dear Jeff:
I own $250,000 in mutual funds. I am also selling my main residence and will have left, once mortgage and fees are paid up, approximately $330,000. I own half an apartment building from which I can withdraw $1,000 a month when I choose to start. I am 60 and tired of working. Can I afford to retire? I would like to buy a smaller home. In what price range should I pay if I want to be able to live off the income from investments? Also, I own a manufactured home in Florida where I like to spend five months a year. The home is worth approximately $35,000.
Jeff Says:
Most people contemplate the lifestyle they would like to live and then hope that their savings will pay for it. You seem to be approaching the retirement decision from the opposite viewpoint. Here are my investments and my sources of income -- what can they provide? You can then determine whether or not it would be sufficient to support your retirement. I like that!
If you add your mutual funds and the proceeds from the sale of your home, you can generate an income from a portfolio of approximately $580,000. Your personal investment style and risk tolerance level will determine your expected return, but let's say that you are willing to assume a little risk in your investment strategy and would be satisfied with an average of about 9 percent per year. If you withdrew 7 percent of your portfolio balance each year, then you would have an annual income of over $40,000, and your assets would still grow by 2 percent a year.
Of course, I plucked 9 percent out of the air and it is not meant as a measuring tool, or a suggested rate of return. What is important is this: The higher your income need, the higher your return must be, and vice versa. So you must plan your investment strategy accordingly. Don't forget to add your rental income of $1,000 per month into the projection.
After you estimate your retirement income, you can determine an affordable price range for your new home. Just deduct from your anticipated income an amount to cover your living expenses and maybe a little extra for emergencies. Then see what is left for a mortgage payment. You can use ThirdAge's home calculator to calculate mortgage payments based on various assumptions until you find a mortgage amount with which you feel comfortable.
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