Retirement Financial Planning 101
It is estimated that 10,000 Americans will turn 60 every day for the next 20 years. This makes retirement planning an extremely vital issue.
Retirement planning is the process of deciding what your retirement goals are and the actions and decisions you need to undertake to bring these goals to fruition. It involves estimating expenses and saving and identifying other sources of potential retirement income. Your future finances will determine your retirement goal for instance in the event of a promotion.
Following are some tips on retirement planning.
Set A Goal
You will require a clear road map of what you want to achieve. To do this, you can work with a financial planner to calculate this figure.
Factors that determine how high or how low this figure includes the kind of lifestyle you want to lead, what you want to do during retirement, and at what age you would like to retire.
There are several methods of calculating this figure. Some financial planners advise that you save 25 times your annual expenses. For instance, if you currently spend $30,000 per year then your value will be this amount multiplied by 25.
You will arrive at $750,000. On the downside, this method assumes that you spend a percentage of your income (it does not consider people who spend more than they earn and are consequently in debt).
Additionally, your expenses may change once you retire (for example, you do not need to commute to work and, if you are lucky, you have paid off your mortgage).
However, new expenses come up such as hiring someone to help with housework or yard work and medical expenses. This method estimates that you retire at 65 years and live to 90.
Other people recommend that to retire comfortably, you need around $1 million. Other professionals use the 80 percent rule which translates to saving 80 percent of your annual earnings.
If you make $100,000 annually, then you should plan to save enough to spend $80,000 every year for 20 years. In most cases, the vast majority of retirees do not save enough to meet these benchmarks; living within your means when you retire is yet another alternative.
Set A Plan To Reach Your Goal
Now that you know the amount you are working toward, the next step is to figure out how much you need to put aside. Use a retirement calculator or work with a financial advisor on this.
Determining factors here are your age, your chosen retirement figure, and your assumptions on your expected future income.
This annual amount can always be altered under various circumstances, for instance, in the event, you earn a promotion at work, inheritance, or when your business revenue goes up. In this case, you can increase your annual rate in a bid to arrive at your goal sooner.
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