Calculating your Needs for Retirement

While it is possible for you to calculate your retirement needs on your own, the most reliable way to obtain an accurate financial forecast is to seek out the services of a professional financial planner. An experienced planner can look objectively at the whole of your financial situation. He or she can then provide you with a reliable projection of the approximate amount of your pension- or retirement benefits based on the contributions you've made over the years, and of any spending limitations you'll need to observe once you reach retirement.

One of the first things that a good financial planner will probably do is advise you to begin making the maximum allowable amount of contributions to your retirement plan immediately, and certainly the closer you get to retirement age. This one adjustment can be extremely important because it can boost your retirement earnings much more than you may think, especially when you consider that many employers match their employees' contributions (if not dollar-for-dollar, at least to some degree). But in order to receive the best advice, you'll need to help your planner help you by doing a little calculating of your own. The planner may ask when you hope to retire, whether you anticipate moving to another state, if you intend to travel, pursue a higher education, what type of lifestyle you'd like to maintain and various other questions.

Don't forget that you'll also have to take into account your health insurance expenses. For example, a typical worker may have a healthcare plan such as Blue Cross and Blue Shield along with supplementary coverage. This type of insurance could cost $10,000 a year or more, but it's a necessary component that can alleviate expenses resulting from poor health, which can be catastrophic.

If you'd like to run some numbers yourself to get an idea of how much you'll need for retirement, there are many online calculators that you can use. A good one is located at CNN Money. To use it, you simply enter your current annual income, 70 percent of that amount as your post-retirement income, your expected annual retirement and Social Security benefits, your current age, the age at which you plan to retire, and your life expectancy. Please note that these figures, and therefore the result, are all approximations. (The 70-percent rate is the amount of your pre-retirement income that most experts agree would be needed for you to retire comfortably.) Once the calculations are made, you can then proceed to increase your retirement contributions, if necessary, or begin a savings and investment program outlined by your financial planner that will yield a high rate of return.

If you're years away from retirement, calculating your retirement income now will give you a pretty good idea of what to expect. The sooner you begin, the greater the probability that you'll have more than the necessary finances to live your Golden Years on your terms, doing what you want when you want. Don't adopt the attitude that "the future will take care of itself." It may very well do so, but it may not take very good care of you.

 

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