Thank you, Sens. Jeff Bingaman (D-N.M.), Johnny Isakson (R-Ga.), and Herb Kohl (D-Wis.). The three legislators have just reintroduced their Lifetime Income Disclosure Act (S. 267), which would require your 401(k) plan sponsor to give you an estimate of the income you can expect in retirement based on your current account balance.
That's a big deal, and very good news, since so many Americans have no idea whether they're saving enough. But while you wait for the legislation to pass, you may be surprised at how easy it is to estimate your retirement income on your own.
Crunching simple numbers
For starters, the Social Security Administration sends you an annual estimate of what you can expect from it. Let's build on that by tapping the services of a basic online calculator. Assume that you're 50 years old, you've got $100,000 socked away now, and you can invest an additional $5,000 per year for the next 15 years, until you hit 65. At an expected annual growth rate of 8%, you'll end up with a nest egg of about $464,000.
So what will that give you in retirement? Well, according to our Rule Your Retirement newsletter (which you can try for free), various studies suggest that a conservative approach is to withdraw 4% in your first year, then adjust for inflation annually after that. Multiply $464,000 by 0.04, and you'll get the first year's withdrawal: $18,560, or $1,547 per month.
Try the exercise with your own numbers! For more detailed calculators that incorporate inflation and taxes, visit the Fool's calculator collection.
The dividend option
So where will that 4% come from? Well, you can sell stocks from your portfolio. But if you'd rather not shave 4% off your nest egg each year, consider loading your portfolio with healthy, growing companies that pay significant dividends. Plenty of stocks offer yields near 4% today, and many dividend payers increase their payouts over time.
Here are a few promising names with yields near 4%, returns on equity of at least 15%, and at least four stars in our CAPS community of investors:
|
Company |
Dividend Yield |
Return on Equity |
CAPS Rating (out of 5) |
|---|---|---|---|
| Frontline (NYSE: FRO) | 3.8% | 24% | **** |
| Philip Morris International (NYSE: PM) | 4.3% | 155% | ***** |
| Paychex (Nasdaq: PAYX) | 3.7% | 34% | **** |
| Sysco (NYSE: SYY) | 3.7% | 29% | ***** |
| Abbott Labs (NYSE: ABT) | 3.9% | 22% | ***** |
| Kimberly-Clark (NYSE: KMB) | 4.3% | 34% | **** |
Source: Motley Fool CAPS.
Building a solid retirement isn't impossible, as long as you take the time to plan and invest effectively. When outlining your future, it's critical to know what kind of payout you can expect, whether from Social Security, a pension-like annuity, or powerful dividend-paying stocks.
To get more ideas of great dividend-paying stocks, read about "13 High-Yielding Stocks to Buy Today."
