You have worked all your life, accumulated a sizeable nest egg and you now feel ready for the next chapter of your life; Retirement. That can be a scary word for many people. That’s understandable. There is no room for error when planning a lifetime of cash flow.
That’s where retirement planners like us can help. We have the tools and expertise to prepare several scenarios and establish if retirement is feasible and at what level taking into consideration a number of assumptions.
If you are 60 years old for example, you have to plan for about 30 years of indexed future cash flow. The assumptions you will use in this analysis are crucial and include:
.the rate of return on your capital invested
.the rate of pension indexation
.the rate of inflation
.tax rates on different type of income
All of these can greatly affect the results. These must be evaluated with great care. The most significant error I see in my practice is people ignoring inflation. Inflation is indeed our worst enemy. The price of a loaf of bread was about 40 cents in the 60s. You can easily pay $3 nowadays for the same loaf. That is 4% inflation. It is true that inflation has been slightly lower in the past few years, ranging from about 2% to 3%.
Here is tip #1: Be conservative in your assumptions. I would encourage you to factor a 3% rate of inflation in your cash flow analysis.
My next blogs will talk about:
.the rate of return you can realistically expect over the long-term on different asset classes
.the average tax rate you should use
.the income cash flow you need throughout retirement and how to evaluate it
.Putting it all together.
Please feel free to ask questions. I am here to help you plan effectively for the next chapter of your life!