Every individual that is presently engaged in an income-generating endeavour knows what retirement is. A time will come when efficiency starts to drop; that means you have to stop working. Planning for retirement is a dicey engagement. It is not easy to fathom just how much you will need to sustain your expenses at a time when you can no more be gainfully employed. This means knowing how much of your present income should be saved up for the eventuality. The good news is that you can calculate your retirement savings by understanding your finances, lifestyles and health status.
There are a number of guidelines on how to know what to set aside now as your retirement savings. Some financial analysts affirm that your retirement expenses may reach up to 70% of your present expenses, all things remaining constant. However, this rule of thumb is not overly helpful since all things cannot remain constant for long periods. You need to consider answering some basic questions.
- How much do you earn presently? Your current income is subject to change, either incremental or the other case, based on your present career level. How much you can save at various income levels differ.
- How long do you have to work? This depends on how early you intend to retire as well as how long you have been working.
- What are the likely additional sources of income available to you after retirement? This relates to those that would be earning pensions as well as those with investments held in perpetuity.
- How do you take care of your health care during retirement? That you are healthy presently does not mean that is how you will be at old age. Funny enough, health care gets more expensive as we age.
Irrespective of the answers to the above questions, you can only get a comfortable retirement by saving towards it. There are various online tools and retirement calculators that help you to calculate your life expectancy, your estimated retirement income and other retirement needs. However, it all boils down to how much you are willing to save now.
- In general, a preferable guideline is to save up to 15% of your annual income during your early working years and increase it to 25% in the latter years of your work engagement.
- Evaluate your overall savings method. How are they growing? By improving your savings, the compound interest rate will do some magic to the figures in the long term
- If your employer put in place a retirement plan, ensure to allocate the maximal contribution possible for your income level. As a level raiser, invest your bonuses, tax refunds and other windfalls into your retirement savings plan.
- You can as well consider opening an additional individual retirement account that will augment any retirement plan that you might have established before now.