Planning for Retirement

 

been making one hundred thousand dollars a year— considerably more than her fictitious friends and fictitious local barbershop patrons.

"Now, between her expected Social Security benefits and some interest income she will be able to generate from investing the proceeds of selling her business, Cathy expects to have an annual income of around forty thousand dollars. She would either have to live on less than half of what she was accustomed to or dip into her ten percent fund to make up the difference.

"She wouldn't have to dip into it for just sixty thousand dollars, though. She'd have to use seven hundred and fifty thousand dollars of her fund, because it would take that amount, invested at eight percent, our standard assumed rate of return, to create a sixty-thousand-dollar annual cash flow. Suddenly, her finer-things-in-life money is being depleted dramatically. For every one dollar of needed income, twelve dollars and fifty cents must be used from the ten percent fund," Roy explained.

"Eight percent of twelve and a half being one," I cal-culated.

"And your dad said you were a 'math murderer,'" Roy kidded.

"I see your point, Roy, and I agree. I'm sure these two do, too," Cathy surmised correctly, motioning at Tom and me. "So, you're saying we should save ten percent and in-vest it for growth, and save enough separately to make up any shortfall in our post-retirement income."

"That's precisely what I'm saying. To be in truly great shape, you must do both."

"Once again, Roy, your argument makes perfect sense. Nobody could question its logic, but is it feasible?" Tom