Financial Planning, Retirement Issues


Individual Retirement Accounts

Individual Retirement AccountsThere are all types of retirement accounts. Some are individual, some are spousal, some are open in the sense that you can make withdrawals while others are locked and consumers who retire are only allowed a maximum amount each year to be withdrawn. For specific details about what kind of account you have, consumers should speak with their investment adviser or their bank depending on who they have their retirement accounts with.

In this post about individual retirement accounts we thought we would discuss estimating our income during retirement and how this can be done very easily. In my case I have two ways of estimating, only because I really want to get a different opinion and check my assumptions. Many people will ask their investment adviser to develop an estimate for them. In this case he or she will ask you a number of questions, fill in the details and the answer will pop out of his computer in terms of a nice graph showing you how much you will have in the way of income.

Estimating Income from Individual Retirement Accounts

In our case we listed all of the pension income we would receive in each year. This consists of income you may receive from both government as well as any income you get from company pensions. Depending on your age and also your company that you work for you may actually get a company pension, however this is become less frequent as companies are pushing the responsibility of saving for your pension back to the individual. People are living much longer and it is just too expensive for many companies who want to stay competitive. The sad reality is that most people must plan for their retirement and many are not saving enough.

Next you need to calculate the income you can expect from your retirement accounts. The simple way is what I have completed initially. All I have done is take the income in terms of dividends and interest income from the various investments to see what income I would have without touching the principle each year. If I can accomplish this feat, then I will never need to touch the principle and will always have income coming in from these investments barring major changes in the market.

If this income is not sufficient to meet your needs, then you may have to enlist the help of your investment adviser to help you with the calculations.

Complex Income Analysis from Your Retirement Account

Your retirement account investments will generate income from dividends and interest. Let’s assume that level is 3% for our model. In addition on average over the years, the value of your investments will grow over time as the market increases. There will be some volatility over the years and some years it will even be negative, bit over the long term there will be a positive increase. Let’s assume 2 % for a total of 5% gain on average each year.

Next you need to decide how much you are going to take out each year. This can be decided by making a decision regarding your life expectancy or just picking a number that is reasonable, and meets your income requirements.

Planning Your Retirement

When you investment adviser plugs these numbers into his model, he can quickly tell you how long your payments will last and whether you have enough saved in your individual retirement account. Some adjustments may need to be made at this time to balance your income with your life expectancy to ensure that your savings will last long enough.

Adjustments can be made every year to account for good and bad years and changes to your assumptions about income needs etc. Work closely with your adviser to make sure that you have sufficient income to meet all of your lifestyle needs.

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