People who are approaching retirement age always want to know how much money they need to retire in security and comfort. This is a critical question that should be considered sooner rather than later.
Here are a few issues that could have an effect on your retirement:
How much will you need?
There is no simple formula that you can use to determine how big your retirement nest egg will have to be. Let’s say that your portfolio earns a yearly return of 5% and you want to raise your spending power by 3%, not illustrative to any specific portfolio or investment and ignoring any taxes. Of course, none of this is guaranteed.
During a 20-year period where your portfolio will end in zero, you will need a lump sum of $196,000 for every $1,000 per month that you want to have. Therefore, you need to have a lump sum of $1.96 million if you want $10,000 per month. If you are healthy and you feel like you may live for around 30 years in retirement, your present stream of money value needs to be $269,000 for every $1,000. If you assume a 6% return, but keep everything else the same, you will require a lump sum of $179,000 per $1,000 for a payout over 20 years. You will need $237,00 for a 30-year payout.
Your investment performance
Many investors have become more conservative because of the market events of 2008 and 2009. While this should not be surprising, many investors could now be considered too conservative. This is especially true for those investors near retirement age. Those retirees are now moving backwards in their purchasing power because of the current low interest rates, after taxes and inflation.
If we only look at inflation during 1991 to 2011 and ignore taxes, the loss in purchasing power has been 39%. This has caused a decrease in the standard of living for those who have conservative investment portfolios or who live on a fixed income.
Student loan burden
Student loans are another important issue that must be considered by retirees. I am not talking about their personal student loans. I mean the loans that the retiree co-signed for their children and grandchildren. It has become a troubling trend for young people to default on their loans and pass the financial burden to retirees.
Be realistic
Before you begin the process of figuring out exactly what your retirement number will be, you must understand that this number will be a moving target. Younger business owners that will not retire for a few decades will have many unknown factors that will have an impact on their retirement budget. These factors can be tax policies, medical advances that cause their lifespan to be longer and the quality of their health. A person should do a new set of calculations every few years to account for any new factors that have occurred.
The sooner you begin planning for your retirement, the easier it will be for you to adapt to any financial situation that may develop. Keep a close eye on current market trends and always be aware of what your investments are doing. This can ensure that your retirement is a peaceful one.
Chris is a Financial Planning Expert from Sydney, Australia. He recommends that everyone seek professional superannuation advice in order to have an enjoyable and prosperous retirement.
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