Your Pa just retired after 40 years of serving a local bank. He has done his duty as a father. He got you guys through college. He footed the bill for your appointment with the doctor every time. He forked out that much needed dough for providing a roof over your head. Doing all this and more, his resources dried up. What’s left now with him is the little that Social Security has to offer.
Most financial planning experts would say that Social Security would provide for less than 40% of last earned amount. Well, so what about his dream vacation that he could not take because of other priorities?
Plan Now!
Do you see yourself sailing in the same boat, a few years down the line?
The Government encourages you to plan for your retirement in your hay days. The first step in doing so is using a ‘Retirement planning calculator’. This calculator can help you decide how much money you would require after your retirement. Also whether your current savings plan is sufficient or you need to chip in that extra dollar.
Using the calculator is easy. You have two versions to choose from. The quicker version assumes a lot. Your retirement age, length of retirement, social benefits, the growth rate of your investments and the taxes you have paid are all assumed. Raises and inflation are not taken into account. Considering all this, the detailed version is better.
The calculation varies based on your marital status. For married couples, the retirement planning calculator begins calculating retirement from the date the first spouse retires. The salary of the working spouse is considered as earnings in retirement. Do you plan to retire before or after your spouse? Choose ‘single’ as your option to get an individual result.
Factors considered for calculation of your background include your year of birth, current annual salary before taxes and your current federal tax bracket. The tax bracket you fall in is decided by your marital status (single/married/widow(er) and whether you are filing jointly or separate. The bracket would be also different if you are the head of the household.
Decide on the amount of annual income you want on retirement. This should be a percentage of your current salary. You need to key in your estimated annual security benefit. Also mention your expected earning from defined benefit pensions or pension annuities.
Your IRAs (Individual Retirement Accounts) would also be considered. These would be traditional and Roth IRAs. Also provide your SEP, money purchase, profit sharing and other tax deferred or tax exempt retirement accounts. Other financial tools like tax exempt mutual funds, fixed and variable annuities and tax exempt bonds also make a difference.
The calculator would then require details about taxable investments you have made for income in retirement. These would be in terms of stocks, bonds, savings accounts, CDs, stock mutual funds, bond mutual funds, money market funds and others.
Do you have real estate or other fixed assets which would generate income after retirement? Then please take these into account, as well. Choose the Post retirement growth rate to invest more conservatively.
Visit a financial advisor to get a professional understanding of your current scenario and your tolerance for risk. One cannot predict political turmoil, interest fluctuation, market downturns or personal financial distress. The calculator is a mere tool to help you.