Planning for retirement can be a daunting undertaking. There are several important economic factors that should be considered when developing a financial savings plan for retirement. The following five tips will help estimate how much money is needed for retirement and how much money should be invested each month to secure a sound financial future.
Establish a Retirement Goal Date
The first crucial step in determining how much money should be invested for retirement is to establish a retirement goal date. This date should be decided based on a number of important factors:
- Desired age at date of retirement
- Pension vestment
- Social Security eligibility
The ideal retirement date should occur after you are fully vested in a pension plan or have reached an age where you are eligible for maximum Social Security benefit. Desired age at time of retirement should be a secondary consideration to maximizing pension and social security income.
Consider Future Income
Once a retirement date is chosen to take full advantage of pension and Social Security income, an estimate can be made to determine how much money will be brought home every month. The net monthly income figure can provide a baseline for determining how much money should be saved each month for retirement.
Estimate Future Expenses
Expenses that should be considered during retirement include taxes, health care costs, insurance payments and mortgage debt. A fixed monthly expense figure should be calculated to determine how much money is needed every month to meet financial obligations. Consider your life expectancy when calculating long-term expenses to ensure you don’t outlive your money. You may also need to consider the cost of medical bills or a facility for independent living in Ohio any state you choose to retire in. Remember that prices might fluctuate as well and inflation may make the cost of living much more than it is today.
Have Realistic Expectations of Return on Investment
As you near retirement age it is best to consider investing in safe, non-volatile investment vehicles. A conservative rate of return should be anticipated and should be factored into your financial planning.
Determine Savings Rate Based on Today’s Income
Once a retirement date has been selected and future expenses and income have been calculated you can determine how much money you will need to invest for retirement. The total amount of money that you will need to meet financial obligations during retirement should be divided by the total number of months from now until your expected retirement date. The result will be the amount you need to save and invest each month for retirement.
Careful financial planning is essential to secure a sound retirement and build confidence that life’s expected and unexpected expenses will be covered. Consideration of tax liability, debt and income is the cornerstone of building a strong financial future.