Most individuals know they need to save for retirement, but often they aren't sure where to begin. "How much do I need to save each year?" "Can I maintain my current standard of living?" "When can I afford to retire?"
To begin developing a plan, you need to answer the following questions:
- At what age do you plan to retire?
- How many years will you spend "in retirement?" When estimating, you should plan to live to age 90 or 95.
- How much do you expect to receive from Social Security? Your local Social Security office should have an "Earnings and Benefits Estimate" form for you to complete and submit. You'll receive a report that estimates your personal Social Security payments at age 62, 65 and 70.
- What other sources of income do you expect? Does your employer provide a company-sponsored pension plan? If so, check with the plan administrators to see if they can estimate your monthly benefit or lump sum.
- How much do you currently have set aside as retirement savings? Include IRAs, savings accounts and company retirement plans (like 401ks, profit sharing or money purchase pension).
- How much income will you need in retirement? This is always a difficult question to answer. Most individuals assume that their expenses will go down upon retirement. That may be true -- you may no longer have a mortgage payment, but you'll have utilities, maintenance, insurance and property taxes on any home that you own.
Budgeting for medical expenses, including insurance, is a must. Below is a list of items to help you begin thinking about your "true" annual expenses.
Housing Recreation Transportation Gifts/Contributions Food Home Care Clothing Maintenance Travel Taxes Personal Care Insurance Medical Other
Once you have gathered this information, ask your financial advisor* to prepare a savings projection for you. In only a few minutes, you will have a good idea of what you need to save today for the retirement you deserve tomorrow.
