Scott Carty: How Much Money Is Enough in Retirement?

Online, August 23, 2013 (Newswire.com) - A recent survey by TD Ameritrade said that one in six baby boomers surveyed believe they'll need $1 million to retire. The study also revealed that a majority of those surveyed have saved only a quarter of that amount to-date.

So, how much do you need?

Honestly, it's not about your number. It's about how much income you need in retirement to live comfortably and do the things that you're passionate about. If you plan to buy a private island, you'll need much more, but if you're like most Americas, you're more focused on maintaining your current lifestyle, having disposable income to travel a bit, securing a financial legacy for your children and grandchildren, etc.

So where do you find your income in retirement? Most likely the income you draw in retirement will come from a number of sources. You'll have social security benefits and maybe even a pension. The likelihood of social security and a pension covering your income needs in retirement is slim. This means that you're left with the situation where you have a gap between your income and your needs. If you've heeded sound financial advice, you've likely planned for this gap by investing in retirement accounts.

How do you use this money in retirement to your benefit? First, let's classify the money in your retirement accounts as one of two types: safe money and risk money. Safe money is defined as money that provides guaranteed returns of principal. Risk money is defined as investments that expose you to potential shifts in the market but have long-term potential for higher returns on investment.

How and when you use safe money and risk money is critical to preserving your income in retirement. Safe money is "live on" money. Safe money can come from such accounts like fixed annuities, CDs, bonds, government-issued securities, and money market accounts. These are accounts that provide you with guaranteed income in retirement. Risk money is "leave alone" money and can come from such accounts and places like mutual funds, commodities, real estate, stocks, and bonds. Again, risk money investments should be entered into for their long-term return rate potential.

Which would you rather "live on" in your retirement? A fixed indexed annuity or stocks? If you're human, I hope you picked the "safe" type of money.

Live on your safe money throughout your retirement years and use your risk money to fuel additional needs as they arise.

About the Author

Scott Carty is the president of DC Capital Management, a retirement and legacy planning firm located in Livonia, Michigan. Carty is a Certified Wealth Strategist (CWS) and Certified Estate Planner (CEP). DC Capital Management specializes in building simple yet comprehensive retirement plans for those nearing or enjoying their non-working years. DC Capital Management can be found online at http://www.dccapitaladvisors.com