How do I get confidence that I am planning for retirement correctly

Question

So, I am not a big spender. I have some investment in stocks and focus on monthly savings and don’t usually splurge money.

That said, I don’t know if I am doing enough to save enough money for retirement.

Mostly I am trying to answer the following:

1. Assuming I live the lifestyle I have today after retirement and I live till 85 years, how much money do I need to save before I retire?
2. I have read about the 4% rule. It seems it assumes that investments usually have a 5-6% return. Is that true? How do I measure that for my investments?
3. Currently I am working a job that I would say is “reasonably safe”. However, I would like to switch my job roles a little bit to companies with a little more challenge but also more financial risk. Before I do that I want to make sure I’ve saved decent so that I don’t have to financially worry if things go bad for a few years. How many more years do I need to be in this “reasonably safe” job before I do that switch?
4. Should I get a retirement advisor? I talked to fidelity once but they wanted to continually manage my investments. But initially I am just looking for basic advice.

Answer 1

1. Based on historical data, you need to save around 30 to 35 times your annual expense and invest it appropriately to become financially independent. You can do this either by cutting your expenses or increasing your income. If you wanted to be extra safe, make this factor 40.

2. Historically, the equity premium has been 6%. That is, equities have yielded roughly 6% more than the risk-free rate. I just checked that the S&P 500 index fund SPY returned 6.6% per annum over the last 24 years not counting dividends. The broker will generally issue a statement on which your return will be stated for different time periods.

3. It depends on the risk involved in the new job, your preparedness for the new job, your annual expense, and how many years you expect to be unemployed if things do not work out. If you can provide the numbers in the comments I can give you an estimate.

4. Just gather information from disparate sources such as these and then decide what you want to do. If you invest a reasonably large portion of your assets in an index fund in a systematic, periodic manner with a small chunk invested in every period, you will generally tend to do well over the long run. But there are no guarantees because past history is no assurance of future performance.

Answer 2

No on the retirement advisor. I don't know what the fee structure of Fidelity is, but with Wells Fargo Advisors, a managed account costs something like 1% per year. That's not 1% of the return, but 1% of everything under management (so depending on assets, you could be paying thousands per year in just fees). And you pay those fees even in a downturn, so the advisor makes $$$ while you're losing it. And to boot he simply would've used some portfolios from MorningStar. You could do they exact same thing by getting the portfolio weights from MorningStar yourself, or just buying various index or ETF funds (I like Vanguard, and SPY)