Answer These Three Questions If You Want To Retire With Enough Money
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Do you know how much money you will need at retirement? Do you know if you will even have that much money? The best method to know for certain is for you to start putting together your retirement worksheet today. Before you begin your worksheet, however, you will need to answer the following 3 vital questions:
What is your annual desired retirement income in today’s dollars. In other words, if you were to retire today, how much money a year would you need to keep you living in the fashion to which you are accustomed. Most retirement spreadsheets and calculators will have built into them projected estimates for inflation and will be able to use this figure to calculate roughly the amount of annual income you will need at retirement.
What number of years remain until you retire? This is crucial as it’s the number of years that you have left in which to contribute funds to your financial portfolio. The computer worksheet will take the value of your present investment portfolio and add to it any anticipated donations up to the retirement date. The computation will reveal approximately how much you can expect to have at retirement. If this amount is less than what you require, you will either have to add more money to your portfolio, change your investment strategy, or lower you expected standards of living at retirement.
How many years will your retirement funds be expected to last? This is a sensitive question as it gets into life expectancy and mortality issues. Once you begin to collect Social Security, your income from it will be relatively constant. But Social Security will most likely cover less than half of your desired income. And in many cases, it will cover much less. This means that your remaining investments have to supply the rest of your income. In the best of circumstances, you will be able to live off of a combination of the interest and dividends from your investments and not have to touch the principal. If, however, you are forced to start drawing against the principal, your annual income from it will continually decrease until gone. Knowing how many years your retirement funds will be necessary will help you make the decision as to whether you should start to draw the principal down or accept a lowered standard of living.
