Peek Inside Her Portfolio

MC Allvine

Mary Claire Allvine

“Peek Inside Her Portfolio” looks beyond charts and formulas to explore how real women are (really) planning for retirement. First up, Allison, a 44-year-old mother of two who shared her 401k and Roth IRA accounts with Mary Claire Allvine, a wealth advisor at Brownson, Rhemus & Foxworth in Atlanta, and the author of The Family CFO: The Couple’s Business Plan for Love and Money.

Allison has $55,000 in the diversified Freedom Fund 2040 (FFFFX) plus another $20,000 in a Vanguard stock index fund (VFINX) in her Roth IRA.  

Both are invested appropriately, given that she’s planning to retire in 20-plus years.  These are low-cost funds, and the Freedom Fund 2040 in particular, a target-date fund, is designed to provide growth and stability. Like all such funds, this one invests in a combination of stocks and bonds, with a majority in stocks currently. Gradually the allocation will become more conservative. Assuming that over the next 26 years the investment earns 5% more than inflation per year, Allison will have around $280,000 in today’s dollars at age 70.

But is Allison saving enough, given her $125,000 yearly salary? Like a lot of parents, she may be holding back in part because her kids—ages 8 and 10—are also a priority. Growing kids demand a lot of capital, and not just for saxophone lessons and summer programs; there’s college to think about.

That said, my advice to Allison is what I tell many parents: retirement has to come before college savings. And Allison is doing a pretty good job—but $280,000 isn’t going to be enough for her to retire.  

Let’s look closer at Allison’s numbers:

At age 70-1/2, required minimum distributions begin—i.e. the government requires you to begin withdrawing set amounts from  your traditional retirement plans.  That first withdrawal is only 1/27.4th of the balance: for Allison, that’s $10,219, in today’s dollars—for the whole year.  (The Roth IRA has no mandate for distribution, but most savers will need to draw on the assets to support their retirement.)  The government’s calculations then require slightly larger distributions (in percentage terms) every year into retirement.  This methodology is actually a safe guideline to use for distributions.

Now let’s look at how much Allison is saving: Her additional 5% contribution every year will significantly boost her future security. By adding another $6,250 per year to these same investments, at age 70, she could have nearly $640,000 (today’s dollars).  And her first year’s retirement distribution will be $23,000.  When added to social security, Allison will have a base retirement income of $50,000 or more.

But a 5% savings rate is still way below the 10% standard. So let’s say Allison increases her retirement deferral by 3% each year (from $6,250 to $6,438 next year), then her age-70 distribution will jump to $28,000. 

If she increases her savings by 5% each year to make the full 10% (from $6,250 to $6,563 and so on), then her first-year retirement income jumps to $33,000, again plus Social Security.

 If Allison can start saving 10% of her income ($12,500 today), and even if she doesn’t ever increase her savings again, she will have $1 million at retirement.  She can do it! 

Another key point: All my calculations assume that Allison is willing and (I hope) able to work until age 70. Otherwise, the numbers are radically lower, for both her savings and for retirement, if she takes either at age 62 (the earliest age at which you can claim Social Security) or 67 (full retirement age).


Does your plan need an update?

Join the “Peek Inside Her Portfolio” series on DailyWorth now! Just send us your contact information, and we’ll reach out to you privately. We protect your real name and personal data; you get feedback from a licensed advisor. Note: This is not a professional consultation; DailyWorth does not provide investing advice.

Join the Discussion