The Benefits of a Retirement Income Calculator
When you are young, retirement is the last thing on your mind. You are too busy living life and enjoying your youth. You just can’t imagine being one day, as old as your grandparents. Unfortunately, that is the wrong attitude to have.
The younger you start to think about retirement, the easier it will be to build up a comfortable nest egg to make your retirement a happy one. Once you stop working, you will need a certain amount of money to maintain the type of lifestyle you want and deserve.
A retirement income calculator is a good way to find out just how much money you may need to save to keep your lifestyle at about the same level it is today. Most experts suggest that you have about 70% of the monthly income you made during your prime working years to live the same lifestyle. This makes certain assumptions that may or may not be true, so 70% of pre-retirement income is only a starting point for retirement planning.
There are numerous questions to ask when trying to decide how much income you will need to retire. Not everyone can achieve the goal of having an adequate retirement income, but, knowing what that figure is can certainly guide you in the right direction. You may need to work extra long hours, get a second job or downgrade your current standard of living in order to be able to save enough for retirement.
- What is Your Current Financial Situation? Before you can know how much retirement income you will need to sustain your lifestyle, it is imperative that you do a complete assessment of your current financial position. You can do this yourself, or get a retirement specialist to help you. The basic questions are the same.
- How Old Are You? The more time you have before retirement, the better chance you will have to save. A thirty two year old man in excellent health and with a good job, making plenty of money is in a great position to plan for retirement. For simplicity’s sake, using the rule of 72 which states that your money will double in the number of years you get by dividing the rate of return into 72. So, if you are able to average a conservative 8% over the years, your money will double every 9 years. With the thirty two year old man, imagine he put just $10,000 into a good growth fund and left it there until he was 68 and ready to retire. His money would double to $20,000 at age 41, double again to $40,000 at age 50, be worth $80,000 at age 59 and when he was ready to retire at 68, he’d have $160,000. Not bad for a $10,000 initial investment. That is only a simple example to illustrate the power of compound interest. The point here being that if you start with $10,000 at say age 50 and retire at 68, your $10,000 will only have had a chance to double twice to $40,000 which is respectable, but no where close to the amount the younger man could accumulate.
- What Are Your Current Assets? Liabilities? Do you have a retirement plan? How much? Do you own your own house? How much equity do you have? You should do an inventory of all your assets (money, property, gold, life insurance and so forth) as well as your liabilities (mortgage, car payments, other debts etc.) to see just where you stand. At one extreme, if you find you have a net worth of million dollars, chances are pretty good you will not need to worry about your retirement. On the other hand, if you have no savings and live paycheck to paycheck, you’d better wake up and take some action to improve your financial situation. Not everyone can be rich or even cares about being rich. Most people just want enough to pay their bills and maybe treat themselves to an occasional night out.
What Happens When You Retire?
A number of things happen when you retire. First of all, you will be entitle to collect Social Security. A monthly check, based on your best earning years over the course of your work life, will be one steady stream of income guaranteed by the US Government. Normally, it is not enough to live on by itself, but, it does provide a good portion of most retirees income. If you were a high earning individual, you might expect to get about $2,000 or so each month. Those that did not earn so much might be closer to $1,000 per month. Each year, the Social Security Administration sends you a statement giving you a fair estimate of what you can expect to receive each month upon your retirement. Pay attention to this figure as it will help you plan your retirement.
The next pretty important thing that happens when you reach retirement age is that you become eligible for health care coverage under the Medicare program. For a very reasonable monthly fee (which usually is deducted right out of your SS check) you are covered for 80% of your medical bills. Additional policies are widely available to bridge the gap for charges that Medicare does not cover. As you age, health problems tend to occur more often than when you were young. A retirement income calculator can also take into account the need to set aside some money for health care.
That is basically what the government does to help retirees. The rest is up to the individual. So, unless you want to be like the millions and millions of today’s senior citizens who struggle to pay bills because all they have is social security as a source of income, you must make plans to enhance your retirement income.
How Can You Enhance Your Retirement Income?
Participate in your company’s 401K or other retirement plan. Have regular weekly or monthly withdrawals taken directly from your paycheck and added to your retirement account. You can also set up your own traditional or Roth IRA (Individual Retirement Account) where you can make additional contributions toward your retirement. Most experts would recommend a Roth IRA as you pay taxes at the time you put money in, but then it grows tax free and when you eventually withdraw it, you have no tax liability.
Another source of retirement income might be a pension you receive for working for a company for a number of years. The Post Office and most Federal and State jobs are known for providing pensions. If you serve long enough in the Military, you can walk away at a relatively young age with a nice pension.
Finally, you should consider the equity in your home. If your house is paid off by the time you’re ready to retire, you may have the answer to your retirement income needs. If the house is too big for your needs, you may consider selling it, taking the proceeds and buying a smaller, less expensive place to live. If you just love your house and would never consider moving, a reverse mortgage (where you get monthly payments based on how much equity you have) could be the solution to needed retirement income.