Have you already planned what your life would be as you reach your retirement age? Answering such question involves a bit of math and analysis. It is because retirement is not just about coming of age and waiting for the dawn. It was rather something that must be planned with the help of few calculations and financial analysis.
How much money do I need to retire?
This is a common question for many who are starting to realize that people are not getting any younger. We do not work only to suffice the needs we have today, but what we are going to need in the near future. It always involve several factors such as when are you planning to retire and how much would you like to spend? In this article I will detail some of the factors that you have to consider in calculating the amount of money you will need when you retire.
- How much money will you spend? I am referring to future spending here, so it would definitely be a wild guess for you. You can do this by calculating the amount you spend now and adjust it for any possible inflation. Take note that by the time you retire, you have the tendency to spend more than what you can spend now. You must also consider any possible medical expenses because we all know that few health problems come with the aging process.
- Make an estimate of your retirement income. This may include your social security benefits and pension plans. However, let me tell you that pensions are a bit tricky to calculate considering that you have not completely earned them yet. Nevertheless, you can get the information about your annual pension benefit from your employer. In this case, you will definitely need a specific formula to estimate its future market value. To make it easy for you, look for a pension calculator online to help you getthe result fast and easy.
For instance, you have calculated a future expenditure of $80,000 per year. You are expecting a $30,000 annual retirement income, which include your social security and pension. Having these results, you realize that you still need to have a $50,000 extra income to suffice your future spending. In this case, you will need to make a feasible investment.
Using a free financial calculator and a reasonable investment rate, you will now be able to assess your target amount of investment. In this particular example, let’s say you have calculated $1,000,000 ($50,000 divided by 5%). If you have a total savings of $300,000 including your retirement income, assess its future value in the next 20 years. In case, the result is $800,000 then you will still need $200,000 to complete the one-million-dollar target investment. However this may not be enough money for you to retire comfortably.
Again with the help of financial calculator, estimate the amount of money you will need to invest each year to reach the $200,000 deficit at the end of 20 years. As I said earlier determining the amount of money you will need in your retirement is not that complicated at all. With the help of these financial tools or software, you will be able to estimate it effectively without straining yourself too hard.
On the other hand, maximizing the retirement plan investment also takes a lot of things to remember. One is to stop trying to time the market. As much as possible, you should avoid short-term ventures. Instead, you must invest in a long-term deal. In addition, spread your bets across various sectors, market capitalization and countries. Maintaining an adequate level of diversification in your portfolio is the best thing you can do. And that is how you figure out the answer to the question “how much money do I need to retire”
You can also look at some cheap places to retire around the world and make your retirement dollars go further.