Anyone that has begun to consider their options for retirement has no doubt asked themselves when they can retire and how much they will need to save up. These are two tricky questions for a variety of reasons, including the fact that the future is always unpredictable. Any number of twists can take place ranging from a dramatic shift in the economy to a serious illness, but this does not mean planning is not essential. Those that set a realistic goal, account for hiccups in their plan, and stay patient can put themselves in the best position of retiring when they want and how they want.
The Deciding Factors
While no one is ever going to be able to take every variable into consideration, it is important to understand what the most important factors will be during this process. The few crucial considerations to make are how much you are making now, your current age, and when you would like to retire. Outside of these few factors, the situation is going to be much more muddled as a family attempts to understand upcoming expenses that may occur, their life expectancy, potential raises, the idea of transitioning jobs, a second household income, changes to the standards of living, or any other issues that are bound to take place over the course of one's lifetime.
The Basics
No matter where you are in your life or what your current career may be, it is never too early to consider your options. Planning for retirement even a few years in advance will help your nest egg grow exponentially, and this means taking a closer look at the current standard of living and how much retirement is going to cost yearly. For most, the benchmark to set at an early stage is to accumulate savings that will provide you with 70 to 80 percent of their pre-retirement income. While this number is sure to change at some point when other variables begin to pop up, this is a great starting point for younger employees.
Pensions, Social Security, and Retirement Accounts
Once a baseline number has been created for yearly earnings while in retirement, it is time to begin considering exactly what accounts will help attribute to this overall goal. Social Security is one of the easiest accounts to calculate, but it will also generally be one of the smallest. Long gone are the days in which an individual can retire exclusively on Social Security. Not only is this program entering into a rocky stage, it is bound to get worse as retirees have a longer lifespan with fewer paying into the program. Most specialists suggest that anyone preparing for retirement should plan as if they are retiring without Social Security and instead consider it an added bonus. Pensions are hit-or-miss as well depending on the quality of the company that an employee is working for and just how well the pension is insured. Private pensions also have a number of options including how much is taxed currently and in the future.
Retirement accounts such as a 401k have become some of the most popular ways to save due to the fact that many private parties are not only offering guaranteed earnings, but they also have the option to completely insure these accounts. Any number of calculators can be used to get a rough idea how much each of these accounts will contribute earlier on, but more exact numbers will become more important as one grows older. It is generally around 10 to 15 years before one's planned retirement that they should begin focusing on more exact figures.
Improve Your Odds of Success By Tweaking Your Plan
Most specialists suggest that anyone planning for retirement should begin as early as possible and then take a fresh look at the numbers every five years. While the most important period of time will be the ten years just before retirement, a retirement plan should be revisited and the numbers run every few years. If a couple in their 40s currently has an average household income of $100,000 and will only be making $50,000 during retirement on their current plan, it is time to begin making changes. Putting more into a company-matched retirement fund or exploring one's options for private investing while cutting back on a monthly budget may seem like a stretch now, but it will produce exponentially better results over the next 20 or 30 years.
A Look At the Home Stretch
During your 30s or 40s, a retirement fund will be more about setting monthly and yearly goals and sticking to them, but the final 10 years of employment will mean that it is time to start looking at some hard numbers. In the last 10 years, those looking forward to retirement should be re-running the numbers every single year to ensure that they are on track. This period is also a time in which most larger expenses have already been paid off or are accounted for in the future. The expenses should include everything from a child or grandchild's college tuition to mortgage payments.
This is also a period of time in which pensions, Social Security, and all other retirement accounts should have relatively precise numbers. The average couple may be shooting for around 75 percent of their pre-retirement income, but this can change according to the lifestyle that one would like to live. There are a variety of options that you can exercise at this stage in your life to meet your financial needs in the future, such as downsizing a home, switching to more affordable vehicles, or even picking up a paying “hobby” after retiring from their long-term career.
In the end, this process is all about starting early, staying consistent, and slowly becoming more precise with the numbers as time goes on. Planning for a six or seven figure retirement in your 20s or 30s with mortgage payments and multiple dependents may seem daunting or completely impossible, but the goals will become clearer as these major expenses and any high-interest debt are lowered. Then it will simply be a matter of narrowing down a post-retirement budget and then making small changes to various retirement accounts in order to stay on track.
