If you decided to hide the LinkedIn profile from the annoying head-hunters, take your time to decide whether the income is enough to save for retirement. A new job might offer better benefits or a larger savings match. The survey of the U.S. Government Accountability Office states, almost half of households headed by people older than 50 have no retirement assets at all. To cast light on how much money is needed to retire, the experts recommend weighing some factors of grabbing the bull by the horns. Though our calculations don’t claim to be precise, a personal retirement plan is helpful to grow an individual nest egg.
Factor #1: What will be living expenses?
The rule of thumb is the simplest one to figure future income after leaving the job. It is based on solid logic that 15-25% of your paycheck should be paid to one of your savings plans and taxes, and your spendings usually won’t exceed 80% of your salary. You will spend on things less than you used to, there will be less need to purchase clothes or visit dry cleaners.
You should recognize all your assets, pension, or other benefits. It’s easy to calculate that earning $60,000 the retirement income of an individual would be $48,000 if they followed the 80% rule of thumb. What it means, withdrawing an amount near $12,000 a year from the account, you get monthly benefits of $3,000, or $36,000 a year.
The money that lasts as long as you do is a wrong approach to the plan. While building the budget most of us usually exclude travel, medicare, or long-term care. Everything unplanned charges a high savings rate to foot the bill. Finally, think over whether you wish to leave something to your heirs and maximize your retirement account to cover expenses.
Factor #2: How to make the investments working?
Though the value of stocks, bonds, deposits is unpredictable in the nearest decades, they can work for the growth of your capital. The single rule here is that investing a smaller dollar amount over a long time horizon has a greater impact on investment results than investing a larger dollar amount for a shorter period. Here are the best investment strategies for achieving financial freedom:
- Creating a total return portfolio;
- Using immediate & variable annuities;
- Purchasing bonds;
- Investing in rental real estate;
- Utilizing closed-end funds;
- Getting dividends.
The good idea is to be cautious and never keep all your retirement savings in a single investment as it always involves risk. Inflation is one more factor which you should mind about. It’s great if your savings grow while you sleep, but sometimes growth can’t be enough to beat out inflation, which rate has been roughly estimated as 3%. You should be aware that the amount of money today will be that much less valuable in the future and keep safe alternatives.
Factor #3: What is Your Expectancy of Life?
You never really know how long you will live. If you turn to average numbers they state that a 65-year-old retiree will live 20 more years, with a 1:20 chance of living 30 more years, a 1:4 chance of living 10 years or less on average. According to the data from Social Security, at 65 we are expected to live another 18 years for men or another 20.5 years for women.
The retirement planning experts recommend that you plan for a longer-than-average retirement in order to get more festive years after your 80th birthday. While trying to estimate how long you will need money, it makes sense to remember your grandparents’ length of life. Till you know you are as fine as a fiddle, you should plan not less than 25 years to live after retirement.
Factor #4: How much can you spend from savings per year?
Secure retirement involves limiting your current consumption to fund the future. Housing (30% of income), food (30%), and transportation (17,4%) are the three biggest categories in a budget of a typical American family. To free up more hundreds of dollars you should rent or buy as much space as you need, buy midsize fuel-efficient cars, avoiding long-term loans, and never waste the food.
A rate of 4% is considered to be the most sustainable annual withdrawal amount from retirement savings accounts. For instance, if you have $300,000 in savings, no more than $12,000 could be withdrawn in the first year. Be sure, you can adjust that amount upward for inflation each year for the next three decades. But every withdrawal that exceeds 7% increases the odds to get run out of money within this period.
If you are not working on federals, there’s no sense to hide the LinkedIn profile for a potential employer’s offer with significant pre-retirement income. If you have a coffee-and-cake job, you can find yourself way behind as soon as it comes to retirement planning. Whatever your age is, you should have a good grip on the situation with your current job to take full advantage of matching your 401(k) plan contributions.
In order not to rely on Social Security to pay for the living expenses in a ripe old age, the earlier you can get started, the more time you have for your investments to grow and the better off you’ll be. You get what you pay for, fixed annuities, and retirement plans are opened for all. Making savings a priority is a way to ensure you have enough income to maintain your current lifestyle in retirement.
About the Author
Hi! I’m a Professional LinkedIn Writer and Career Coach on LPWS. I’m a goal-oriented professional, who knows everything about career exposure on LinkedIn.