Retirement Calculation

Retirement calculation to determine your monetary needs after your working years end is the first step toward planning for retirement. Some people are well prepared to retire long before that day comes, and others haven't a clue as to how much money they will need to live comfortably for many years after they stop working. That number also changes over time, so the figure you came up with when you were 35 may be vastly different than today's calculation. A financial advisor can help get you on the road to saving for retirement, but an initial retirement calculation is easy to come with on your own.

A volatile stock market, unstable economy and poor housing market are causing some who are nearing retirement to panic. The average American household income is less than what it was in 1997, and tightening of belts across the board is translating into a hold on many people's savings. Half of people 45 and older have not even begun to save, and this pattern is detrimental to any hope they might have of living a comfortable retired life. The fear that you will have to work until you're 90 could become reality without a realistic retirement calculation. The keys to saving sufficiently are to start early, save aggressively and invest strategically, and all of this is made possible with an accurate calculation.

Planning a Budget

Determining the sort of retired lifestyle you plan to live is the first step toward calculating your needs and developing a savings plan accordingly. Most people would prefer to live a somewhat more lavish lifestyle, within reason. At the very least, you will want to maintain your current quality of life rather than downgrade to a more modest state.

Consider the expenses you already pay that will stay constant. Utilities, insurance, charitable contributions, savings for grandchildren and others factor into your retirement calculation. The next consideration is housing: if you will still be paying a mortgage upon retiring, include that in your calculations. Some may be able to sell their homes and downsize to a smaller rental.

Your healthcare costs will likely increase with age, so budget liberally for medical expenses after determining your Medicare or Medicaid eligibility. Other significant lifestyle changes to take into account are your plans to travel, buy property, invest and other costly activities. In every calculation, factor in an inflation rate of at least 3 percent.

Take a realistic look at your expected Social Security benefits, pension and other sources of retiree income. Your 401(k), IRA and other investment vehicles will also determine how much you have and how much you need to account for in your retirement calculation. Life expectancy is impossible to estimate with any degree of precision, but include any potential life insurance benefits in your liberal calculation, keeping in mind that non-guaranteed windfalls should not have a bearing on your concrete, vital expenses.

Factors for Calculation

Retirement calculators abound on the Internet, and a financial planner can also perform a custom calculation of your needs. When all of your expected liabilities and projected assets are calculated, you are left with the amount of money you will need to maintain a certain income level each year of retirement. Various models can be made of different scenarios assuming you retire later, save more aggressively and a number of other factors. The earlier you experiment with your retirement calculation, the better equipped you will be to develop an adequate savings and investment plan.

Start with demographic information and your goals for retiring. You and your partner's current ages and expected age for retiring determine how long you have to plan. Your life expectancy (be generous) indicates how long you will have to sustain yourself. Your current income, typical annual raise and desired annual income upon retiring give retirement calculation figures for your projected assets and savings goals.

Post-retirement income expectations from Social Security, pensions and annuities add to your retired income. You should consider the age you will collect benefits, determined by year of birth, and survivor benefits should your spouse die. You can calculate your savings expectations by adding the current balance of all investment vehicles and annual contributions and subtracting federal and state tax rates for tax-deferred accounts when you eventually withdraw.

An advanced retirement calculation might include a critical look at your portfolio and how conservative or aggressive your investments are. This should change over time, though. As you near retirement, most financial planners will advise you to transfer your assets to low-risk vehicles.

A retirement calculation is useful for people of all ages. Those just entering the working world can get a jump start on saving or at least have a number in mind for the future. Those with several decades to go can make investment decisions and reevaluate their goals and savings strategy as retiring age nears.

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