Retirement Calculators

Retirement Calculators
By Rex Truman

A retirement calculator is one of the most useful things you
can use when planning your retirement savings. You see most
people plan for retirement without any idea of how much they
need to save, or how much they want in retirement. A retirement
calculator provides the answers.

A retirement calculator shows you how much to need to save to
get the income you need when you retire. Or it may be how much
you want! That depends how much you are making, and how young
you are. Either way do use a retirement calculator.

You can find a retirement calculator on many web sites, so you
do not need to get the services or a retirement planner or
investment advisor to find the answers. In this way, you use the
retirement calculator, calculate the amounts you need, and then
visit an investment advisor or retirement planner.

To decide how much you need to save, you need:

1. The income you need to live on at today’s prices
2. The rate of inflation per annum between now and the
retirement date.
3. The rate at which your fund will grow.

Let’s go through these and how they relate to a retirement
calculator. First, how much do you need to live on? Remember,
that retired people do not normally spend as much as people who
work. When you retire, you won’t need:

special clothes for work the sort of car that keeps you up with
the Joneses
you will be able to take holidays at off-peak times
and you will have time to do things – instead of paying to get
them done.

So your costs will be lower. So let’s say you are earning
$60,000 a year now, you might think that $50,000 would be
enough. Next you need to remember that if you are healthy, you
expect to live for 15-20 years, and so need to allow for
inflation in that period – so actually you need more! This is
where a good retirement calculator comes in.

2. The next thing the retirement calculator needs is the rate
of inflation, or what you expect it to average until you retire.
With the price of oil going up, we know that inflation over the
next decade will be higher than it is now. Official figures put
inflation at around 2-3%, but the true figure is more like 5%.

This means that you need to allow for at least 5%, and probably
7% and feed that into the retirement calculator.

4. At what rate will your retirement plan grow? A difficult one
this. Five years ago, people were talking in terms of 10%, but
not now experts suggest a lower figure. The problem is that a
retirement fund or retirement plan has to be prudent – you don’t
want to wake up one morning, a year or before you retire, to
find that a crash on Wall Street has cut the value of your fund
by 30%. You just won’t have the time to get that money back.

So you will be doing well to get 10% return, but could almost
guarantee 5-6%. Maybe 7-8% would be a realistic figure to put
into the retirement calculator.

The retirement calculator is just some software set up to make
a calculation after you enter some figures. As I said earlier,
the retirement calculator needs:

Required income
Inflation
Expected return
And of course, how long till you retire.

Here are some results from a retirement calculator:

Required income: $30,000 per annum
Years till retirement: 15 years
Annual inflation: 2.5% (unrealistic)
Annual yield: 5%

Income needed in 15 years: $43,448
Required value of retirement plan in 15 years: $825,000

Quite a lot of money for a modest retirement income. Here’s
another one:

Required income: $30,000 per annum
Years till retirement: 20 years
Annual inflation: 5%
Annual yield: 8%

Required value of retirement plan in 20 years: $987,573

If you want an income of $45,000 when you retire – equivalent
to less than $30,000 today – you will need: $148,000.

When you use a retirement calculator, make sure you use one
that does calculate the income you will get at retirement
adjusted for inflation – over 20 years, you will need 50% more
than think you need today. If you do this, then you will benefit
form using a retirement calculator.

About the Author: Rex Truman is not retired but should be -
instead he gives information at http://www.retirewhenulike.com
to help people save enough so they can enjoy retirement, ideally
with an interesting job where they are in control.

Source: http://www.isnare.com

Permanent Link: http://www.isnare.com/?aid=216614&ca=Finances