You need to beef up the savings, at least $1,000 per month for the next 16 years. With even a 3% growth rate, you will have $240,000 and with a 5% growth rate, you will get $280,000 so with $1,000 per month of savings, you can expect to withdraw $9,000 and $10,500 per year. With a 4.25% growth rate, you will have $10,000 per year and approximately $267,200 in assets.
Remember these are simply hypothetical assumptions and have no reflection in reality. They are provided for ease of understanding but in no way predict what will happen; past performance is no guarantee of future results.
| $ 0.60 |
$ 241,882.58 |
$ 0.95 |
$ 267,199.74 |
$
1.18 |
$ 283,889.90 |
|
0.03 |
20.1568813 |
0.0425 |
22.26664534 |
0.05 |
23.65749177 |
If you need a little extra cash, you may want to consider an immediate annuity. Unlike a variable annuity, the money you put into an immediate annuity is no longer part of your assets. Instead, you receive an income stream in exchange for giving up a certain sum of money. For instance, you might be able to get a 7.5% rate at age 66 on the $267,200 that you saved up from $1,000 per month of savings. If you accumulated that amount of money, you would get a monthly payout of $1,670 per month. Variable annuities have large fees (ranging from 2.25% to 4% in most cases). Remember to spread the assets around to several insurance companies as if one goes insolvent, I'm not sure of the protection you'll receive if your state cannot back you. The answer is you'll receive nothing so be careful out there. I much rather have FDIC with the printing press than the state(s) even though the state has been low risk, so far. Besides, the limit of protection is only $100,000 and it may only apply to fixed annuities so check with the state insurance commission before entering into a contract.
If you saved $1,000 per month over 25 years, instead, you might have between $437,500 and $572,725.
| $ 1.09 |
$ 437,511.17 |
$ 1.83 |
$ 516,917.79 |
$
2.39 |
$ 572,725.19 |
|
0.03 |
36.45926432 |
0.0425 |
43.07648211 |
0.05 |
47.72709882 |
$516,000 would mean that you could withdraw about $1,612.50 per month or $19,350 per year. If you put it in an immediate annuity at 9% (since you're older), it would get you around $46,440 per year. This means she would have to work till 75. At 4%, it is $499,750 so even a small adjustment can result in a large decrease in the amount you'll receive. That would mean a payout of $44,977 per year, instead. You may want to find out yourself by going to immediateannuities.com; it is a helpful site and I hope you can get something like that. According to the site, you could get 9.8% at age 75. I hope the information is moderately accurate since I wouldn't want to give you false hope. I'd lean towards the 3-4.25% return rather than expecting a 5+ percent rate of return.
To get to $48,000 of capital, you will need to save $55,000 to $63,000 per year for 16 years to get to $1.3 million. The rates of savings requirement drop dramatically as you bring it to 25 years. If you wait 25 years, you can get to the amount by saving between $27,500 to $36,000 per year to get to the same $1.3 million. Or put another way, it means putting away $76.50 to $100 per day to get to $1.3 million. With $50 per day, you might reach the goal of $640,000 in 25 years. A 4.25% rate of return may come if a fixed income portfolio earned you 1.5% and an equity portfolio earned you 7% and you were 50/50. Remember, these are solely hypotheticals.
So if you manage to save the $640,000 but cannot reach $1.3 million, it is a good idea to think about how much income you need, what you would like to do in retirement, and are there any special needs that lead for the need of an inheritance? For instance, lets say you put $400,000 in a balanced portfolio of 50% equities and 50% fixed income and withdraw 3.75%, you can withdraw $15,000 annually from the portfolio and you would get $4,500 from each of the four annuities of $60,000 each for a total payout of $33,000 per year. Getting inflation-adjusted immediate annuities may result in a lower rate of return and result in not getting the money back from your annuity (because you die too early or because inflation is too low). However without inflation protection, you may not benefit fully from it. The problem is, in your 70s, you really want to be spending your money so that you get to enjoy it whereas in your 80s, it might pay for your care. Getting long-term care insurance is important if you develop these assets since the type of care that you can receive is much nicer than in a Medicaid-run facility.
Don't worry. I have worked as a financial representative myself; it is a tough business. I think it is essential to be your own money manager as it takes a lot of effort to know what you're doing and even if you do, you can still get it wrong and there are always several opinions about a course of action. I think there are many of us with concerns for our parents. It is one thing to manage another person's money, but it hits close to home when someone close to you has financial trouble.