Retirement Income Planning Needs to Start At An Early Age
One of the key pieces of information needed for retirement income planning is a close estimate of income expected at retirement. This income can come from a variety of sources such as a retirement fund from the employer, 401K payouts, Social Security and any other income from all other sources. Unfortunately, for many getting ready to retire, their foray into retirement income planning did not start early enough and they may find themselves having to budget their potential expenses to meet their projected income.
For most people nearing retirement, it is important to calculate their anticipated expenses before looking at their proposed income. By finding this out first, they can quickly determine if they can afford to retire or if they will have to work a few more years. Conversely, with accurate retirement income planning, they may also find they can retire earlier than originally anticipated.
With most retirement plans, the payout is calculated on the worker continuing until a certain age, with regular payments being made until that time. Income from investments is other sources may show their retirement income planning allows them to accept a lower monthly payment, retiring early, and still maintain their lifestyle.
Important To Calculate Higher Expenses
Depending on individual circumstances, it is likely that living expenses will increase every year after retirement and a person’s retirement income planning should include those figures when determining their future income needs. While many retirement plans may offer annual cost-of-living increases, they do not take into consideration escalated expenses for items such as transportation costs, travel expenses as well as food and housing.
For the purpose of retirement income planning, it should also be considered if any of the income sources may tank and cause a loss of income. Many investors with high risk portfolios realizing a high return may switch their products to a more conservative portfolio. While their return may be smaller, they can be confident that their investments will not cost them money through bad investments. This change is typically accomplished the closer a person gets to retirement.
By investing in guaranteed funds, retirement income planning can show a more accurate picture and by including accurate expenses pictures, they can merge to show how a person’s lifestyle will be adjusted upon retirement. The time to plan for retirement is about the same time they begin working in order to be assured of having enough cash at retirement.
Retirement Income Calculator Offers More Reliable Picture
Almost every retirement planning service offers a retirement income calculator that allows users to determine how much disposable income they will have available to them upon retirement as well as how much they can expect to leave for their heirs. Their level of discretionary income will depend on their income minus expenses, which can be used to either bolster their savings or use in a somewhat frivolous manner.
One of the things to consider when using a retirement income calculator is how you want the capital used. It can be used to spend on expenses, keep it in reserve and use the interest for expenses or to allow it to grow, using income from other sources for living expenses. If a part-time job is expected to be in the future, the annual income from that job as well as any expected increases over the time the job is held is also calculated.
The amount of money expected to be in the retirement nest egg at the time you leave your job, including the rate of return along with the current and expected inflation rate will offer some indications of income level. Adding in your retirement age, life expectancy and the total value of your estate into the retirement income calculator can give a good estimate of an annual income as well as how much of the estate will remain as a bequest to survivors.
Be Wary Of Risky Ventures
One of the quickest ways to lose money from your retirement income is to invest in high-risk plans that offer a high rate of return. These investments may have been good when you were younger and could afford to lose a large chunk of change, but any retirement income calculator depends on the savings continued growth and does not consider massive losses from questionable transactions.
Another variable needed to plug into the retirement income calculator is your health and the anticipated cost of healthcare in the future. While insurance can cover most of the expenses, the health of your spouse should also be factored into the equation. There are some government-run programs that require a person to vest many of their financial holding in order for the government to pay for care. This leaves the surviving partner virtually nothing if the other partner does not live as long.
It is these types of variable that are difficult to plug into a retirement income calculator, but allowances must be made for them. Calculating income conservatively and using aggressive numbers for expenses should result in a near accurate financial outlook.