When you are young and have just begun to work and save for retirement, the finish line seems far away. You know you’re putting money away, but there will come a point where you wonder if you’ve done enough. And if you haven’t, you’ll worry that you will have to work much longer than you anticipated or end up struggling through your later years. Will your savings be enough?
How Much Will Your Savings Provide in Retirement Income?
One of the most important things to think about when financial planning for retirement is to come up with how much you’ll need in retirement income. Retirement income is how much of your retirement savings you will be able to safely withdraw each year. The number that most experts agree on, assuming a retirement age of 65, is 4% of your total retirement savings. If you have a $1 million dollar portfolio at age 65, you will have a retirement income of $40,000 a year. If you have a retirement portfolio worth $300,000 and retire at age 65, your retirement income will be $12,000.
It is also important to remember that your savings will not be your only source of income in retirement. You will likely have income from Social Security. Some retirees choose to take on new, part time employment. Investments you have made may continue to bring in income. It’s important to look at your total retirement income plan.
How to Calculate How Much Retirement Income You Need
Different advisors use different numbers. Some say you will need $1 million, some will say twelve times your pre-retirement salary, some say 80-90% of your pre-retirement income. What each person needs varies greatly based on your personal situation. The first thing you’ll need to do is create your retirement budget. Some of this budgeting will depend on how you plan to spend your retirement. Some of your costs will increase, such as health care, but others may decrease. Your retirement budget should include the basics of your current budget (assuming you have one, if you don’t, now is the time!), but also how those items may adjust. If you will pay off your house before retirement, that’s a big monthly expense that you won’t have to factor, but if you plan to travel, you’ll need to budget for that.
Checking on Your Retirement Saving Progress
Just looking at the total in your retirement account may not give you the best picture of how you are progressing in your financial planning for retirement. There are several calculators online that will let you look at your current salary along with your total retirement savings and will let you know if there is a gap. If there is a gap, most of these calculators will give you some advice on how to catch up.
Catching Up on Financial Planning for Retirement
No one likes to feel like they are behind, and when it comes to retirement savings, it’s easy to panic and realize that you might not be doing as well as you thought. Don’t panic. You can catch up. Whatever you save and invest today can make a big difference in the long run, even if it’s just an additional 1%.
Financial planning for retirement can be overwhelming. Speaking with a financial expert can help you locate where you are and what you will need to do to make sure that your retirement years are financially stress free. Contact our office today to see what you can do to increase your upcoming retirement income.