Retirement is one of the most important life events many of us will ever experience. From both a personal and financial perspective, realizing a comfortable retirement is an extensive process that takes sensible planning and years of persistence. Even once it is reached, managing your retirement is an ongoing responsibility that lasts throughout your life.
Why Plan for Retirement?
Uncertainty of Social Security and Pension Benefits by government-sponsored retirement and Unforeseen Medical Expenses have transferred the financing of retirement from employers and the government to individuals, leaving them with no choice but to take their retirement planning into their own hands.
How much will I need?
There really is no single number that would guarantee everyone an adequate retirement. It depends on many factors, including your desired standard of living, your expenses (including any medical costs) and your target retirement age.It’s definitely possible to determine a reasonable number for your own retirement needs. All it involves is answering a few questions and doing some number crunching. Provided you plan ahead and estimate on the conservative side, you should be able to accumulate a nest egg sufficient to last you through your retirement years.These include the following:
- Decide the age at which you want to retire.
- Decide the annual income you’ll need for your retirement years. Generally speaking, it’s reasonable to assume you’ll need about 80% of your current annual salary in order to maintain your standard of living.
- Add the current market value of all your savings and investments.
- Determine a realistic annualized real rate of return (net of inflation) on your investments.
- If you have a company pension plan, obtain an estimate of its value from your plan provider.
Where Will My Money Come From?
Save 10% of your income for retirement. Increase investment as your income grows. Whenever you get a raise, allocate half of it to savings. You might not notice the change since you will be enjoying the other half of the raise. The Golden rule is to save 20 times your annual expenses.
