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3 Keys to Your Financial Freedom

By Scott Thoma June 29, 2018

Couple meeting with financial advisor

When you think about financial freedom, what comes to mind? Perhaps you’d like to travel, spend more time with the grandkids or explore what really interests you.

The beauty of retirement is that it’s up to each of us to decide what it will look like. Since your goal probably includes living the retirement you want for as long as you want, you’ll want to think through how you see your retirement.

Here are three key questions you should ask yourself now:

1. How much money will you need?

When do you plan to retire? This is key to knowing how much longer you have to invest and how long you might need your money to last. You’ll want to factor in outside sources of income (Social Security, pensions, etc.) and any specific plans you’ve made (such as travel or paying for a grandchild’s education).

2. How much can you take out each year?

Your withdrawal rate is the amount you’ll take from your investment portfolio each year. Nothing has a bigger impact on your retirement strategy than this number. If you choose a number that’s too high, you could run out of money, but setting your withdrawal rate too low could mean you may not have the financial freedom you really want. Using a rule of thumb like 4% may be a good starting point, but your withdrawal rate should be based on your specific goals.

3. How much will you rely on your portfolio?

If you need $50,000 a year in retirement and plan to take $40,000 from your portfolio and $10,000 from outside sources, your reliance rate is 80% ($40,000/$50,000). The higher your reliance rate, the more market fluctuations could affect your retirement strategy, which could require you to be more flexible with your spending.

Your financial advisor understands why you’re saving and can demonstrate how your answers to these questions can impact the big picture. Together, you can review different scenarios to see what makes the most sense for you.

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