Tag Archives: Retirement Savings

How do I know if I have enough Money to Retire

how do i know if i have enough money to retireHow do i know if i have enough money to retire? This is the big question that many people ask themselves as they near retirement. Should I work a few more years? Or can I retire now? What quality of life will I have in retirement with the money I have? There are so many questions that we all have and it all comes down to money for many people. But there is much more to it than just money. Sure you need to have sufficient savings to allow you to live comfortably. You also need to have friends, family and things to do. Your activities will need to be interesting, perhaps challenging and give you something to look forward to every day. But let’s get back to the main question, how do I know if I have enough money to retire?

How do I know if I have enough Money to Retire

Start with developing a budget. You will need to know how much savings you will have when you retire and how much income that it will generate from interest, dividend and mutual fund payments. Next you need to calculate your income from private company pensions and government pensions. When will you receive these pensions?

Your expenses are next. Add up all of your regular monthly and annual expenses for everything that you have. Utilities, food, rent, taxes, clothing entertainment etc. Compare your annual income with your annual expenses to get the first indication whether you will have enough in retirement.

You may need to make some adjustments. This could include working longer to save more money. It could also include reducing your expenses. Perhaps you will need to eat out less. Maybe reduce your utilities or downsize to a smaller less expensive home. You also may need to make adjustments to accommodate the objectives you have with regards to travel, etc.

Work with an expert to gain help with this process to answer the question and plan your future retirement.

How Long Should You Plan For Your Nest Egg to Last

How Long Should You Plan For Your Nest Egg to LastIn our last post we suggested that consumers should really try to assess how long should you plan for your nest egg to last. What this question is really asking is how long will you live? And also how long will your spouse live. No one really knows, however you can look for indicators such as how long your parents, uncles and aunts lived. This is a good indicator from a genetic perspective. There could be all kinds of external issues such as health and accidents, but you really have to ignore these. No one can tell what will happen in the next 5 minutes let alone years from now.

How Long Should You Plan For Your Nest Egg to Last

If you want to be conservative, take the average age of your parents and add at least 5 years to that life span to reflect we have better health care and we have lived generally in a healthier manner over the years.

Next take a look at your extended family to assess if there are any that lived significantly longer. Compare your health to that person and make an adjustment to the average number you calculated earlier with the 5 years also added.

If you plan to retire at a specific age, you now have an indicator of how long you need your savings to last. This answers the question of how long should you plan your nest egg to last. From here you can use a calculator of some kind that takes into account the income you should make on your investments and how much you should withdraw each year. Our previous post gave a simple method of calculating this number.

The longer answer is that you must take into account your investments, what income you can expect from them, what the inflation rate will be and how the markets will change over the years. This is a complicated calculation and most advisers will be happy to help you with developing a conservative answer.

If you are looking for more ideas about your life style decisions, click here.

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How Much do I Need to Save for Retirement

How Much do I Need to Save for RetirementWhen asked the question, “How Much do I Need to Save for Retirement?”, the answer really depends on how much you have already saved for retirement. Also how old you are and what your expectations are for your retirement. We will discuss these topics in a little more detail in a moment. The chart on the left gives and indication of how much money you should have saved by age if your objective is to have one million dollars saved by retirement at age 65. It assumes continuous savings as well as investments that perform and income from those investments being reinvested. It also assumes that you do not dip into these savings at any time for things like house payments, mortgage payments, emergencies and so on. Let’s look at each of the issues we mentioned earlier.

How Much do I Need to Save for Retirement

How much you have already saved for retirement – Your savings rate at your current age will depend on whether you are trying to catch up or just maintain the savings rate you have. If your age 45 for example and have already saved $245 thousand, you are well on the way, providing you continue the savings rate. On the other hand, if your savings are zero, then you have to somehow make up the $245 thousand and also continue savings at the rate called for in this chart to achieve one million by 65 years of age.

How old you are – As mentioned in the previous paragraph, age does matter when planning for retirement. If you are just starting out at age 20, then you have lots of time to achieve the objective, however if your 55 and have not saved enough, then you had better keep working until you have achieved the objective you have set for yourself. The next question really sets the tone for how much do I need to save for retirement.

What your expectations are for your retirement

This is the key to the question. If your expectations are in line with your current lifestyle you are probably ok. If your well on the way to achieving your saving objective, you may be in great financial shape. But let’s assume you want to travel, buy toys that you never had and join golf clubs. You might find that your lifestyle objectives for retirement are much higher. Saving more might be in order to guarantee the lifestyle you are looking for.

The basic question: Do you have enough savings to generate income for you in retirement that meets your current pre-retirement income level. Is that enough to sustain the lifestyle you are planning. If yes, they you are ok, if not, then you either must work longer or save more.

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Saving for Retirement

Saving for RetirementHow much should you have saved for retirement? in your 20’s, in your 30’s, in your 40’s, etc?  Knowing how much to save and getting there are two very different things. We suggest that you work with an expert adviser. He will start with your age and your current income level to calculate how much you need to save. He will use a combination of employer contributions, savings, interest income on your savings and pensions that you may or may not be eligible for.  While this can be very complex, it can also be simplified as well by making a list of the income you will have at 65, then decide how much in addition you will need to live in the manner you feel is comfortable for you and your family.

Saving for Retirement

Assume you are making $40k a year and are in your 20’s. Experts feel that you should have at least $4k saved.  By the time you are in your 30’s, the amount should have increased to $82k assuming a combination of interest income and contributions. In your 40’s you should have at least $240k and in your 50’s you should have  over $500k saved. By the time you retire at 65, a consumer should have saved at least $900k in funds available to them to generate the cash flow they will need. If you have a pension income, then these numbers become extra dollars to help enjoy your life during retirement.

The above calculations are merely a guideline or a place to start. If you make substantially more income, you probably want to save more money than was mentioned just to maintain the life style you are comfortable with. Pensions are extra and we urge consumers to obtain expert advice regarding savings levels and your retirement income.

Start when you are younger to begin saving for retirement. It is much easier to meet your retirement objectives when you start young than it is when you start saving later in life.

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Have You Saved Enough for Retirement

Have You Saved Enough for RetirementHave you saved enough for retirement? Most people don’t know and do not know how to even figure it out! This is the sad reality and one of the things that this website and writer are trying to help consumers with. You can meet with a financial adviser, but that typically costs money. Unless you have some kind of investment portfolio, they probably will not want to spend too much time with you. What can you do to answer the question, have you saved enough for retirement? The answer is fairly simple and we will attempt to help you with  this question.

Have You Saved Enough for Retirement

Start by assessing where your income will come from during retirement. Do you have social benefits, old age pensions, medical benefits, company pension, government pensions and any savings that you may have. Add all of the sources of income you will have during retirement to gain some idea of the income available to you during retirement.

Also take a look at how long these various incomes will continue, whether they will increase or not and how safe they are. Government pensions are often indexed based on the inflation rate. Other pensions may not increase as much. Savings income will change as well based on the type of savings you have and how they are invested. Always try to preserve your original investment and just live off the income.

Next compare this number to your current level of income to see if you have enough to live on during retirement. If your income during retirement is less than your current level of income don’t despair. You will need to make changes, but maybe not as much as you might at first think.

The next step is very important. What are you going to do about the situation you find yourself in? Can you save more money, can you reduce your expenses, can you share expense with a family member etc?During retirement some expenses will naturally be reduced. Commuting and clothing costs will certainly change. Asses how your expenses will change compared to what they are now.

Develop a plan to address this problem and begin working towards developing the income you need to have in retirement. Or perhaps how you can reduce your expenses overall.

Note that your savings are very important, both the amount and how you invest it. Always invest diversely, live off the income it generates to maintain the principle during your retirement. If you spend the principle, it is gone and there may not be anyway to replace it. Spend the principle carefully and wisely if you have to. It has to last a lifetime during retirement.

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Retirement Penny Pinching

Retirement Penny Pinching

Are you worried about retirement penny pinching that you are going to have to do? Perhaps you did not save enough for retirement. Or suddenly found yourself out of work. Maybe there was an illness that prevents you from working? These are all issues that unfortunately cause many older people to pinch pennies in their retirement. They may have to find another job.  No one wants to be uncomfortable in retirement. We all want to enjoy the good life after working all of our lives at a job that we may or may not have enjoyed. How do you avoid having to be careful about how much money you spend while retired?

Retirement Penny Pinching

The obvious one is to work longer but not everyone can. Even if you do work longer it never hurts to have a backup plan that will help you if you suddenly find yourself out of work and unable to live the life you always thought that you would. Here are some ideas in addition to working longer.

Reverse mortgages – are advertised a great deal and have the benefit of providing access to the equity you have in your home. It does mean that you will have a mortgage which many people do not like to have after they are retired, but it does provide a source of funds to use while retired. Remember to negotiate the best terms you can and especially a low interest rate

Reduce spending – in non essential areas. Some might consider this penny pinching. But it is also about setting priorities. Spend money on those things you want vs those that are really not needed.

Save more – if you are still working, set aside more money for retirement. The more you save now, the more you will have during your golden years. Remember to invest wisely, conservatively, diversely and seek several opinions before you make your decisions.

Start saving early – for the youngsters that are reading this, begin saving for retirement now. I know it seems like a long way off. But the beauty of compound interest means you will have a large sum sitting their waiting for you when you do retire. If you have a pension, then it is a special bonus providing you with an excellent quality of life in retirement.

Will Your Retirement Savings Last

Will Your Retirement Savings LastMany people just throw up their arms in frustration, confusion and worry regarding the question. Will your retirement savings last? They seem to have no idea whether their savings will last through retirement or not. There are so many variables to think about. It’s really difficult to know if they will have enough money to live comfortably during their retirement. Like all problems of this complexity it is important to break them down into smaller pieces. For example first focus on your income. How much income will you have and where will that income come from. Your income will come from several sources.  A pension from your company, old age pension from your government, and income from any savings that you may have.

Next focus on your expenses. What expenses do you have now, what will you have in the future and what expenses are under your control where you can make decisions with regards to how much you spend. Once you have this information you can begin to assess whether you will have enough money to last through retirement.

Will Your Retirement Savings Last

Let’s look at income and expenses in a little more detail.

Income

Make a list of all the potential income sources that you have. This would include government pension, company pension that you may participate in, income from savings, and income from Business or rental income that you may have. With regard to savings, Many financial advisors recommend that you only withdraw a maximum of 4% each year. This will provide a conservative approach to ensuring that your savings will last through your retirement. If your savings increase through appreciation then your 4% withdrawal rate will increase as well. once you do the calculations you can quickly determine whether your total income will be sufficient for your retirement as compared to your current income or you still need to be working. If not you may want to increase your savings, or work longer.

Expenses

Add up all of your expenses in much the same way as you did your income. First of all identify the fixed expenses for things like mortgage, rent, utilities and communications such as cable TV and telephone. You may also have insurance payment or payments for a variety of things that will last for some period of time. The next set of payments or expenses that you should look at is your discretionary expenses. This would include food, clothing and entertainment as well as vacation travel.

The last group of expenses or expenses associated with things like weddings, emergencies, repair and maintenance to your home and any other major expenses that may crop up during retirement years. You may want to budget for those in advance.

Once you understand your income level, and your expenses during retirement you can then analyze both to make adjustments according to the lifestyle that you would like to live. You may have to generate more income to maintain your lifestyle or conversely you may need to reduce your expenses in some areas to live in the manner that you feel comfortable. The decision is up to you.

You do not Need a Million to Retire

You do not Need a Million to RetireMost people think they need a huge stash of cash that is well invested to ensure that they have sufficient funds to retire on. The fact of the matter is that you do not need a million to retire even though this is counter to what most investment advisers would suggest. They do the simple calculation of looking at the income you feel you need, and use the prevailing expected interest rate income to calculate how much is needed. For example if you want $75,000 income during retirement each year, with $35,000 coming from pensions, then $40,000 must come from your investments.

If you use the approach that the advisers suggest at today’s interest rates of say 3%, then you would need to have – $1.4 million saved for retirement and your portfolio would need to be fully invested earning 3% on average. If you began early enough you might have saved this much, but most people start late and do not save nearly enough. How will you get by in retirement.

You do not Need a Million to Retire – need less Money?

If your income is $75,000 today, do you really need the same amount in retirement? Chances are you will not, since you are not commuting to work every day and you have more time to do some of things that you might hire someone to do for you. Everything from dry cleaning to down sizing to one car costs less. Lets assume that you only need $65,000 to live on instead of $75,000. Now using the same assumptions as before regarding pension income you only need $30,000 extra income and save -$1.0 million. Still high!

You do not Need a Million to Retire – Interest Rates

Interest rates have been low for the past 5 years. They are  starting to rise at the time of this update. However if you are laddering your investments, you will be able to invest your maturing funds at higher interest rates. Let’s assume you can increase your average interest income by half a percent to 3.5%. The impact is to reduce the money you need to save down to $860,000.  Interest rates can have a major impact on your income and it is important to pay attention to this number.

You do not Need a Million to Retire – Fees and Charges

Another area to pay attention to is the fees and charges you pay for having your investments managed for you. Keep these to a minimum. these dollars are better in your pocket than your advisers.  Mutual funds charge half a percent or as much as 2% if you live in Canada. Get out of mutual funds and increase your income.

There are numerous ways to live on less than a million in savings, provided that you pay attention to the details. Make this your new job and you can expect to have more money to live on than you thought.

Retirement Planning Options

Retirement Planning OptionsThe baby boomers are retiring by the thousands. Some are retiring of their own free will, while others are being forced out the door. Some are taking up new hobbies. While others are following hobbies that they gave up while raising a family and following their career. There are many options and activities that consumers who are retiring can consider. We thought we would review a few of these in this post to provide readers with some ideas. If you are following a retirement plan or option that we missed, feel free to leave us a comment and we will add it to the list.

Retirement Planning Options – What to Do?

Volunteer – a lot of people are satisfied financially, but they cherish helping and being with people. Volunteering meets these objectives and gets them out with other people of like minded ideals. Sometimes a volunteer position leads to a full time job.

Start a New Career – you may have work in  one industry, but have always wanted to try something different. Whether you retire on your own or are forced to retire ahead of their schedule, this is the time to follow and develop that new career.

Start a small Business – some will begin a new business. There are literally thousands of small business ideas to follow and try out. Be careful to manage your money. Avoid sinking all of your retirement funds in a business that does not give the returns you are looking for.

Look after the Grand kids – some parents help their kids by babysitting the grand kids. This keeps them active, they help out their own kids and they may even make a little bit of money out of the activity as well. It is a great time to bond with their grand kids.

Work Part Time – is another situation that provides some extra money. It also keeps you in the work force and gets you out fairly often. You still have  some time to do many of the other things we discuss in this list.

More on Retirement Planning Activities

Travel – can be expensive. However if you manage the travel costs, make it your job to find the deals and travel smart. You can virtually travel the world without spending a fortune. Don’t put it off, you never know when you will be forced to limit your travel due to health reasons.

Focus on Hobbies – one person we know loved to buy small appliances, repair them and resell them. It was a hobby at first, but then it turned into a small business opportunity. Which helped to pay for his tools and some of his expenses.

Focus on Your investments – if you have retirement savings, it is important to manage them, rebalance once per year or when major positions change, ensure that you are diverse in your investments and decide when to use the money during retirement.

Help the Kids – everything from renovations, to helping the kids with moving and odd jobs around the house.

Move to a New Location – many people will down size and move to another city to be near family etc. Although this is a short term project, it does take a lot of planning and organization to move from one house to another.

Renovate Homes – buy a house at a low price, renovate it and resell it. This sort of project can be risky, however if you are a handy man at all, money can be made if you purchase a home at the right price, upgrade it and resell it.

Work for your Kids – if your kids have their own business, why not work for them. You can choose to be paid or just help them out. Either way you will have lots to do and you get to spend more time with your children.

All or Some of the Above

Regardless of what you do it is important to have a plan. Some people will even start out with one idea and then switch to another based on their experience and enjoyment. Many will be doing some or all of the above at the same time. One thing we know for sure is that by taking up some or all of the above, you will never be bored or wonder what to do next. For more information about retirement planning, click here.

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Get First Decade of Retirement Right

Get First Decade of Retirement RightGet first decade of retirement right.  Most people tend to spend more money than what they plan. As you get older, particularly after age 74 there is a tendency to spend less money, even when healthcare costs are taken into account. As you get older there’s less opportunity to spend your money and most people will save it with the intention of giving it to their children.

Consumers must also decide when they’re going to take their old age pension. If you wait until you’re 65 you will collect the maximum, or at age 67 with the new laws that are in place you will then collect your maximum. If you take your pension earlier there will be a penalty as much as 30%. Deciding how you’re going to handle your investments and make up for that loss of 30% is a particularly difficult issue for many people.

What should you do

The longer that you can delay taking your pension the more money you will have. If you can also work longer, or reduce your expenses to ensure that you have sufficient money to live on while you’re retired this is also a positive thing to do. Delaying taking your pension will decrease that 30% penalty and if you can wait until your age 65 or 67 you will have no penalty at all and will increase your overall pension income by 30%.

All of these issues are important to take into account while you’re planning your retirement income. Note all of the income that you will have from pensions, government and employee pensions, and also your investment income without having to touch the principal.

If the combined income is sufficient without having to touch the principal and you’re in a good position. If however you must start withdrawing principle you must take into account and plan for the future well into your 70s and 80s to ensure that you will have sufficient income.

Get First Decade of Retirement Right – Investments

What if the stock market tanks

You must also take into account the stock market will be volatile and will be significantly up one year and could be significantly down the next year by as much as 20 or 30%. If you are withdrawing principle when the stock market is down by as much as 20 or 30%, this can really eat into your overall savings and decrease the chance of your savings last your lifetime.

Do a risk analysis on your portfolio and assume a 20% decline in the stock market to assess whether your plan will last your lifetime. If your principal will not last your lifetime, you should probably consider taking less money out of your plan each year and making up the difference with either spending less, getting a job or selling some other asset.

The first years of retirement can be very difficult and critical in terms of ensuring that your investment plan will last your lifetime. get it right and you’ll be very comfortable, get it wrong and you will not have as comfortable a retirement as you had hoped.

Rules for early retirement
Rule 1: Early retirees: Don’t fear losing your health insurance
Rule 2: Getting ready to retire? Save more, spend less
Rule 3: Use your home to boost retirement savings
Rule 4: Budget and plan your financials
Rule 5: Retiring? Time to look for a part-time gig

Get first decade of retirement right and more information about retirement planning click here.

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