How to estimate your retirement plan income?
“Retirement” is the word that suddenly creates a standstill in your minds often boggling with thoughts on how to earn “money” the fuel required in running the race of life and its liabilities. Everyone knows how important it is to plan for your retirement, but is often clueless where to begin.
One of your first steps should be to estimate how much income you’ll need to fund your retirement. That’s not as easy as it sounds, because retirement planning is not an exact science where your put a formula and you get the exact answer. Your specific needs depend on your goals and many other factors. The article guides through some of the factors that will influence your retirement plan.
It is advisable calculate your desired annual retirement income as per the percentage of your current income. It’s worth going through all of your current expenses in detail, and really thinking about how those expenses will change over time as you transit into retirement.
Remember that your annual income during retirement should be enough to meet your retirement expenses. Therefore, it’s important you gauge the amount well while planning your retirement puzzle. Learn to start from day-to-day expenses such as Food and clothing, Housing, Utilities, Transportation, medical, taxes etc. Inflation is directly proportional to your expenses in retirement. Also, the needs and requirements will change from year to year. For instance you’ll be free from your home mortgage or your children’s education but will come up with new expenses such as health care and insurance, may increase as you age. To help you tackle these expense try to build a conservative amount into your estimates.
The right way to decide your estimates and projections for annual income in retirement plan will be determining your age of retirement. The length of your retirement will depend partly on when you plan to retire. The decision mainly revolves around your personal goals and financial situation.
Who doesn’t want to live more and more …? Of course, lifespan is the important factor to determine how long you’ll be retired. We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. You may even run the risk of outliving your savings and other income sources. To protect against such risks, you’ll need to create a sufficient corpus of your life expectancy. Practically speaking, there’s no way to predict how long you’ll actually live, but with life expectancies on the rise, it’s probably best to assume you’ll live longer than you expect.
Retirement income sources
Once you identify the retirement income needs, your next step should be how prepared you are to meet those needs. Other way round it’s like what sources of retirement income is available for you to build a sufficient retirement plan. Have you adopted a sufficient policy plan, mutual funds or any kind of investment vehicle that will provide you with the desired income sources? Remember, the amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your job earnings will be another source of income.
If you’re lucky, your expected income sources will be more than enough to fund even a lengthy retirement. But suppose that you feel you’ll short of the desired target, what next? Relax! Don’t panic—there are simple steps that you can take to bridge the gap. Consultant a financial guru and they’ll guide you hundreds of ways such as : Try to cut current expenses so you’ll have more money to save for retirement, Work part-time during retirement for extra income, Consider slightly delaying your retirement for a few years etc.