Estimating Your Retirement Income Needs

February 7th, 2021 by dayat No comments »

Retirement planning is really a combination of an art and science. You can plan for an annual retirement income that you would like to see in your retirement years – perhaps something that is at least the income that you earn now or a percentage of your current income. You’ll also want to estimate your expected retirement expenses and make sure you protect your retirement savings against inflation. You’ll want to plan for a longer life to avoid running out of income during your retirement years especially if longevity runs in your family. Ask yourself, do you wish to retire and live off only your retirement savings or do you plan to work in retirement to supplement your retirement savings? If you are not yet retired, do you need to continue saving in order to better meet your retirement goals? All of these estimates and considerations are important to factor into your retirement plan and your Financial Advisor can help you make sure that you’re well positioned to retire the way you want.

You have been told how important retirement planning is in order to ensure you retire securely and comfortably, especially if you are closer to those days, but where do you begin to plan for your retirement? Well, you should answer one of the most simple but most critical questions to get you started – how much income do you think you’ll need to retire comfortably on an annual basis in your retirement years? The amount you will need to fund your retirement should be inclusive of the type of lifestyle you plan to have in retirement such as your passions for traveling, your expected health care expenses, and any goals you may want to achieve while you’re retired such as donating money to a cause you’re passionate about. Your specific retirement needs will depend on your unique financial goals along with other factors.

Use your current income as a benchmark
Usually, a good place to estimate the income that you’ll need in retirement is your current income. Your desired retirement income can be a percentage of your current income, which, depending on your financial goals, can be anywhere from 60 to 90 percent. This is typically a favored approach because it is backed by common sense analysis: Your current income provides for your lifestyle today, so taking that income or a percentage of that income makes sense since you would expect it to cover your retirement lifestyle if you decide to leave a similar lifestyle. In addition, you may not face certain expenses in retirement that you may face today like paying your mortgage or paying payroll taxes.

However, you have to be careful using this approach to estimate your retirement income, because it is not meant to account for specific situation. There are things you do in retirement that you may not do in your current lifestyle such as extensive travel. Traveling for example can easily demand 100 percent of your current income, or even more, to ensure that you get by. Nevertheless, it’s fine to use a percentage of your current income as a starting point, but it may be a good idea to go over your expenses in detail to see which expenses will go away, decrease, or increase as you transition into retirement.

Project your retirement expenses
Once you get an idea of your necessary annual income in retirement, it should be enough to cover all of your retirement expenses. Knowing your retirement expenses is a critical step in the retirement planning process, but many people have a hard time identifying what these expenses are and how much should they expect to spend in each area. Getting your mind around this puzzle is even more difficult if you are still far off from retiring. Below are some common retirement expenses that you should plan for in advance:

•Food and clothing
•Housing: Rent or mortgage payments, property taxes, homeowners insurance, repairs
•Utilities: Gas, electric, water, telephone, TV
•Transportation: Car payments, auto insurance, gas, car maintenance, public transportation
•Insurance: Medical, dental, life, disability, long-term care
•Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs
•Taxes: Federal and state income tax, capital gains tax
•Debts: Personal loans, business loans, credit card payments
•Education: Children’s or grandchildren’s college expenses
•Gifts: Charitable
•Recreation: Travel, dining out, hobbies, leisure activities
•Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of assisted living

Keep in mind that these costs will go up over the years specifically due to inflation. The average annual rate of inflation is about 3% to 4%, which is the rate at which your purchasing power will decrease.

Also, as much as we would like to plan for every retirement expense, these expenses may change from one year to the next. For instance, you may have happily paid off your mortgage or a child’s higher education costs early in or by your retirement. At the same time, other expenses such as healthcare costs may increase as you get older. But you should hedge yourself for these ups and downs by being conservative in your estimates. Your Financial Advisor can help take a look at your expenses to make sure that they are as accurate as possible.

Decide when you’ll retire
You retirement needs don’t stop at just estimating how much income you may need to cover your retirement expenses and live a comfortable retirement. You will also have to factor in approximately how many years your retirement savings will need to last you. Obviously, the longer your retirement years, the more retirement funds you’ll need. This will partly depend on when you want to retire and partly on your longevity. For instance, you may feel that you are ready to retire at 50. Even though there is nothing wrong with that if your financial situation allows for it, you will need to bear in mind that a retirement starting at 50 will cost substantially more to fund than a retiring at 65.

Estimate your life expectancy
Your lifespan also plays an important role alongside the age you plan to retire. A long life will cost more because you will need income for those extra years of retirement to fund. There is also a horrifying risk of outliving your retirement savings/income. To make sure you do all you can to avoid that risk, you will need to conservatively estimate your life expectancy. You can use some resource in this regard such as government statistics or life insurance tables that will help you get a good estimate of how long you are expected to live. These tables are based on many factors, including your age, gender, race, health status, occupation, family history, and so on. Needless to say, these are estimates and there is no way to know for sure how long you’ll live, but because people these days are living longer and healthier lives, it is reasonable that you will live longer than you expect.

Identify your sources of retirement income
Once all of these estimates of your retirement income needs are put together and they are as accurate and realistic as can be, the next thing to do is to see what you’ve done up to this point to ensure you are prepared to meet these needs. In other words, what will be your retirement income sources? Your employer may have a traditional pension plan in place that will pay you pension benefits once you retire. You will also receive Social Security benefits. To get your Social Security benefits information you can go to the Social Security Administration’s website ( and request your statement. Other source of retirement income may include contributions that you have made into a company 401(k) plan or IRAs, annuities, and other investments you may hold. The amount of income that these retirement sources will generate will depend on how the funds are invested, the investment return, along will other factors.

Make up any income shortfall
If you are fortunate enough, your retirement income sources will generate more than enough income so you can fund your retirement. But what if there are shortages? Don’t worry – there are ways to bridge that gap. Your Financial Advisor can help you put together a set of strategies to fill in the gap in the best ways.

7 Steps to Retirement Planning to a Safe and Secure Future

January 7th, 2021 by dayat No comments »

Retirement is a tricky thing, one day you feel good about it as you will be relaxing, finally, and the other day you feel worried about your finances. But people who plan for their retirement beforehand may have little or nothing to worry.

Retirement planning is a continuous process, and you would have to try to foresee things. Although, no one can predict everything and it will be better to try to be close enough can do some benefit.

Many people are too scared to retire because they are worried about how things will go when they cut that income off. However, retirement planning is not a hard science and following these 7 steps may let you secure future.

1. Retirement Planning – Assess your financial situation

First of all, make an inventory of all your current assets, liabilities, incomes and expenses. You can sit with your retirement planner and make an estimate of what your responsibilities and expenses would be. When you’ve retired, some expenses may stay the same, like groceries and insurance, and others.

However, some expenses may increase like travel cost, vacation costs, and spending less on growing-up kids. Some expenses would also be taken care of by pension and social security. Highlight your worries and questions that haunt you at night and discuss them with your planner.

2. Calculate the value of your assets and Liabilities

Here are a few tips on how to calculate the value of your current assets.

Write down the current amount in each of your account where you keep cash and liquid savings. These include checking, savings and money market accounts and certificates of deposits.
If you have saving bonds, then calculate and determine the current value or call the bank to find out the current value.
Call your agent and find out the cost of your whole life policy also.
Invested in stocks, bonds or mutual funds, then check the value on financial websites or from your last statement.
Use the current value of your house and other real states.
List the current value of your pension, IRAs, or other retirement plans you have in mind. Try to know the value if you decide to get them cashed today.
Keep other assets such as business and rental property in mind too.
The balance of the mortgage on your house is a monthly liability.
Keep all other mortgages or home equity loans in mind as well.
Record the balance due on credit cards, installments, loan, and investment accounts.
List all the current and over-due bills you owe. These include utility bills, doctors, dentists, telephone, water, gas, property tax, etc.
3. Know what you want

We all want so much that we confuse ourselves with so many things. Make up the list of the things you think must be in your lifestyle after your retirement. Consider everything that may even seem small to you so that you would be prepared for it.

Are you aware of how much money would you need to retire and live comfortably?

Well, research says that you need to replace 70-90 percent of your pre-retirement income. It helps you to estimate your target based on your current income. Although it is a rough estimate, and keeping this in mind allows you to be on track. Maintaining factors such as vacation habits, medical expenses, house rent will have a substantial impact on how much you need to save.

If you can save a right amount of money for retirement, then you will also have options for living the kind of life you want. Proper retirement planning lets you overcome any barriers and constraints, and add to the leisure of golden retirement period. You might even also have enough to leave something for your next generation. Don’t be scared to aim high!

4. Cash Flow Planning

Present value is significant for your retirement planning. It is the amount of money you need in your account today to plan and save for your future. Many people work with their financial advisors or their retirement planners and make individual retirement accounts to prepare for their retirement. You can do so while planning before and after retirement.

Planning Before Retirement

It is almost impossible to start any retirement planning without budgeting. Your budget is an essential part of your cash flow planning for both before and during retirement. It is an essential analysis that one should necessarily do to determine how much cash is needed to maintain the lifestyle you and your family is used to living.

Once your budget is in place, it should be reviewed annually to determine if the addition and subtractions are changing the planned budget or if any other adjustments are needed. A budget will also help to protect your long-term and retirement savings.

Emergency Fund
Let’s face it, unexpected financial problems can arise anytime, and it’s not easy to avoid them too. So, it’s always a good idea if we have some savings to help you in your inevitable needs.

Your emergency fund should be set aside in a liquid manner because you never know what time or situation you might need those. The total amount needs to be decided by you and your family, and it should be at your comfort level. Some people might agree on having $10,000 or $20,000, whereas some people would want to put a higher amount for their emergency funds.

Risk Management
One area that is often overlooked in retirement planning is risk management. People usually focus on saving money for retirement. However, they forget to keep risk management in their minds. Risk management includes car insurance, house insurance, short-term and long-term disability, and health insurance. You need to make policies regarding these and should be monitored, reviewed and updated as needed.

Planning During Retirement

During retirement, your plan should again start with budgeting. Your income will be changing after retirement, so it is essential to monitor your cash flow through-out retirement.

Budgeting after retirement does not only mean to keep a check on the flow of cash. In fact, it also involves analyzing all your expenses throughout the year. It lets you identify places where you can use other or less expensive substitutes or how to plan a significant expenditure.

Tax planning is a massive ordeal for some retired people. It takes up a lot of planning regarding analyzing the sources of funds. It allows you to maintain your lifestyle and hence you need to keep your tax consequences in mind.

Different types of accounts have different types of tax consequences when funded or get withdrawn. Retirement savings or qualified accounts are taxed as ordinary income level. Non-qualified accounts are taxed with capital gains levels.

When specific funds are needed to maintain a lifestyle during retirement, it is essential to keep the tax consequences of the accounts funding your retirement.

Taxes should not be the only consideration when making your retirement planning. Instead, it should be combined with other aspects of your overall financial planning.

Estate Planning
While necessary estate planning is a critical component before retirement, but post-retirement planning has a more important role in managing real estate. It is essential for you to determine what you and your family would like to settle for.

What is crucial is that the approach to estate planning should be similar to your attitude towards risk management. Your estate plan should be reviewed and updated regularly.

5. Invest or Save

It’s entirely okay if you start late as well. The key to expecting success has a positive outlook and understanding that being late is better than never starting!

If you are over 55 years of age, the government offers savings on the catch -up contributions so you can get help to save a little bit more. Sometimes, the chances are that savings account and employee pensions are not enough to reach your goals. That’s when you explore investment products.

It is always good to have an investment on your side if you are planning to upgrade your living standard and staying financially sound for long. There are many different ways to save your money, but IRA accounts have proven to be the best. If you do not know about it yet, then search the mighty internet for guidance.

Create a diversified portfolio of savings accounts, investments, stocks, bonds, property, and insurance that can all contribute to benefit you.

6. Make Strategies to Maximize Your Social Security Income

Social security is likely to remain an essential part of your retirement planning, and it is essential to maximize this benefit.

To maximize the benefits of social security, you need to sit with your retirement planner and make effective strategies for collecting social security. The age at which you decide to withdraw funds will also have an impact on your lifetime savings. You can start receiving from the age of 62. Moreover, the more you wait, the more you will be paid. If you wait till 70 years of age, your payment will increase up to 77%.

Another important thing that you should be aware of is if you’re eligible for more than just your own retirement benefits! You might also be eligible to claim “spousal” or even “survivor” benefits, if you are married, divorced, or widowed. Although, these are based on your records with your spouse, whether they are dead or alive.

Remember not to file for two or more types of benefits at once. Chances are you will lose one of them if you file for both simultaneously. Make strategies to claim the smaller one first, and later on the larger one.

Social security uses the best 35 years of your working life to calculate your monthly earnings. If you have worked less than 35 years, you should keep working. As this will also help you to bump some of your lower earning years.

7. Check and Repeat

The most important thing to keep in mind while doing retirement planning is to focus on your savings. It needs to be updated and changed as needed. Review your retirement plan annually. Nothing is set in stone and with a strong and stable planning leads you to live a happy retirement life. All you need is to put yourself in a position to be successful and organized.

Retirement is a life transition process. Just like other major life transitions, retirement requires you to adapt and grow. It might involve some sad moments for you like leaving your workplace, workmates, moving houses, having ups and downs, being short on money, etc.

However, these grieve moments don’t last forever! The efforts that you make before and during retirement to have a balanced life will help to ensure that your retirement is a smooth and pain-free process.

Although the act of retirement happens in a day, or a week. In fact, the retirement process is taking place over the years before your actual departure. Retirement cannot be successful overnight and it requires in-depth planning and preparation. Your retirement plan might even change at some points in life, depending on your interests, activities, and health fluctuations.