Usually, people are advised to have about 70 to 90 percent of their yearly pre-retirement income replaced by using social security and savings.
For instance, if as a retiree, you earn an average of $63, 000 each year before your retirement, you should be expecting up to $44,000 – $57,000 each year when you retire. You can calculate the amount of money you need to save for your retirement by using a retirement calculator. In this guide, we will explain the important factors that will help you to find out the exact amount you need before you can retire. Let’s begin…
How much will be spent?
Generally, you’re required to have at least 80% of the income that comes before your retirement when you leave your job. This usually because you will most likely not pay your payroll taxes for social security (even if you will be asked to pay some of the taxes for your benefits regarding social security). Also, you won’t be moving money to your 401(k) or even into other of your savings plans.
Finally, you will be able to save on the costs of being at your workplace. Other means of saving costs could be on transportation fare, new clothing, and dry cleaning. You may also need to put in any or some of the pension and social security that you will be getting in the long run. If the money spent years before retirement is $50,000, you will want a retirement income of maybe $40,000 (that is if you follow the 80% rule of the thumb).
What amount of money would be from your savings?
A lot of people are yet to get a glimpse of what bonds or bank certificates, and stocks will make in so many years to come. But going down the history, there are long-term returns that can be used to gain some ideas.
Morning Star once reported that stocks have been able to earn an average of 10.29 percent annually since 1926. This was a period that spelled high levels of depression as well as recession. Bonds on the other hand have over time, being able to earn an average of 5.33 percent a year. How about treasury bills? They have gained up to 3 percent annually.
How much will you be able to withdraw yearly from your savings?
A study by a landmark in 1998 from Trinity College, Texas, had tried to fish out the most comfortable withdrawal rate from one’s retirement savings accounts on different periods. The said staff discovered that a retired investor with a portfolio of up to 50 percent stocks and also 50 percent bonds will be able to make a withdrawal of 4 percent out of the portfolio during the first year. They will be able to adjust the amount withdrawn using the rate of inflation in the following years even though they will most likely run out of money before they die.
The pre-retirement stage is a time to duly plan yourself. Knowing how to calculate how much you need to retire would save you from lots of financial problems.