The amount of money you need in retirement in part depends on your retirement goals. Do you want to go back to school? Pursue a favorite hobby? Travel? What is the outlook for your health? Will your family take care of you if you are unable to care for yourself? The answers to these questions are crucial when determining money needed to support the retirement you desire—and how much you will need to save between now and then.
Once you have a clearer picture of your retirement goal, you can start planning for how much you will need to save to meet that goal. Many people never take this step, yet it is very difficult to save adequately for retirement if you don’t have a rough idea of how much you need to save every month.
There are several avenues to help calculate approximately how much you’ll need to save: worksheets, software programs and professional financial planners. Regardless of what source you use, the following are some of the basic questions you’ll need to address.
How Much Retirement Income will I need?
If you aren’t sure how much, you’ll need a good rule of thumb is to plan on replacing 70 to 90 percent of your pre-retirement income to enjoy the standard of living you’re used to. If you’re making $80,000 a year now, before taxes, you might need $56,000 to $72,000 a year, before taxes in retirement income.
However, no rule of thumb fits everyone. Expenses typically decline for retirees: taxes are smaller and work-related costs usually disappear. But overall expenses may not decline much if you still have a home and college debts to pay off. Large medical bills may increase your retirement costs as well.
Much depends on the kind of retirement you want to enjoy. If you prefer to live a quiet, modest retirement in a low-cost part of the country you’ll need a lot less money than if you plan to be active, take frequent vacations and live in an expensive area of the country.
For younger people in the early stages of their working life, estimating income needs for 30 to 40 years in the future is obviously difficult. Start with a rough estimate and begin saving something—starting small is better than not starting at all. Then every two or three years, review your retirement plan and adjust your estimate of retirement income needs as your annual earnings grow and your vision of retirement begins to come into focus.
How long will I live in retirement?
How long you can expect to live in retirement is a critical, yet often overlooked factor in planning for your retirement. Based on current estimates on average, a male retiring at age 65 today can expect to live approximately 18 years in retirement. A female retiring today at age 65 can expect to live approximately 20 years.
Life expectancy in retirement depends on factors such as your overall health as well as family history. Family genetics are a really good indicator when planning for your life expectancy. How old were your grandparents, parents, aunts, uncles, cousins, and siblings when they passed away, or are they still alive? What was the quality of life like for them?
Due to the advancements in medical technology people are living longer today than they did in the past, and most experts expect that trend to continue in the future.
What other sources of income will I have?
As a federal employee your FERS retirement package is a cornerstone in supporting your income needs in retirement and when combined can be worth millions of dollars. The three retirement plans that comprise this are: the FERS basic benefit, Social Security and Thrift Savings Plan. Taking the time to learn the key components and nuances of each of these plans will go to great lengths to maximize your retirement income.
The FERS basic benefit plan provides a lifetime of income to a retiree, which means regardless of how long you live in retirement, you can never exhaust the benefit. The amount of money you will receive depends on certain factors such as age, years of employment service, and salary.
Social Security is a retirement plan for most Americans and like FERS retirement income you can never exhaust the benefit. The amount of this benefit depends on your earnings over 35 career earnings, and when you elect the benefits. You can keep track of your social security benefits by registering to receive a Personal Earnings and Benefits Estimate Statement online at https://www.ssa.gov/myaccount/.
The Thrift Savings Plan is a retirement program that provides you with an opportunity to increase your retirement income by investing in the markets. You can contribute up to $19,000 a year ($25,000 if you are 50 or older) into the program. Additionally, your employer matches up to 5% towards this program. The TSP is a great vehicle for employees to increase your retirement income. Keep in mind, a major difference between FERS and Social Security with the TSP is that there are no guarantees that your income will last throughout your retirement.
In addition to FERS, Social Security and the TSP, make a list of all the other sources of income you have that can be used towards meeting your retirement income needs.
Calculating the Cost of Retirement
Regardless of your age, or how many years you have before you’re eligible to retire, we have a simple worksheet that you can use to determine if you are on track. Assessing your situation and funding sources will give you a good indication of the lifestyle you can expect during retirement. An effective retirement plan identifies your retirement goals, shows you how to take advantage of all your funding sources, and accounts for taxes and inflation.
Our worksheet provides a rough estimate of the cost of retirement you may face in the future, but more importantly can help you determine if you are on track to meet your income needs as well as what additional savings requirements you need to set aside to put you back on track.
Send us an email if you would like to receive this complimentary worksheet at [email protected]
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James De La Torre has conducted federal benefit and financial planning seminars all over the country. He is a keynote speaker at federal conferences and works with federal professional organizations on ways to improve the communication of federal benefits to their membership. Jim has appeared as a guest on “Fed Talk” on the Federal News Radio network, discussing the gaps in federal benefits and the financial impacts employees face. Jim holds a Charter Retirement Planning Counselor’s (CRPC) designation from the College or Financial Planning and is a member of the Financial Planning Association. Please direct questions or comments directly to James at [email protected].
Once you have a clearer picture of your retirement goal, you can start planning for how much you will need to save to meet that goal. Many people never take this step, yet it is very difficult to save adequately for retirement if you don’t have a rough idea of how much you need to save every month.
There are several avenues to help calculate approximately how much you’ll need to save: worksheets, software programs and professional financial planners. Regardless of what source you use, the following are some of the basic questions you’ll need to address.
How Much Retirement Income will I need?
If you aren’t sure how much, you’ll need a good rule of thumb is to plan on replacing 70 to 90 percent of your pre-retirement income to enjoy the standard of living you’re used to. If you’re making $80,000 a year now, before taxes, you might need $56,000 to $72,000 a year, before taxes in retirement income.
However, no rule of thumb fits everyone. Expenses typically decline for retirees: taxes are smaller and work-related costs usually disappear. But overall expenses may not decline much if you still have a home and college debts to pay off. Large medical bills may increase your retirement costs as well.
Much depends on the kind of retirement you want to enjoy. If you prefer to live a quiet, modest retirement in a low-cost part of the country you’ll need a lot less money than if you plan to be active, take frequent vacations and live in an expensive area of the country.
For younger people in the early stages of their working life, estimating income needs for 30 to 40 years in the future is obviously difficult. Start with a rough estimate and begin saving something—starting small is better than not starting at all. Then every two or three years, review your retirement plan and adjust your estimate of retirement income needs as your annual earnings grow and your vision of retirement begins to come into focus.
How long will I live in retirement?
How long you can expect to live in retirement is a critical, yet often overlooked factor in planning for your retirement. Based on current estimates on average, a male retiring at age 65 today can expect to live approximately 18 years in retirement. A female retiring today at age 65 can expect to live approximately 20 years.
Life expectancy in retirement depends on factors such as your overall health as well as family history. Family genetics are a really good indicator when planning for your life expectancy. How old were your grandparents, parents, aunts, uncles, cousins, and siblings when they passed away, or are they still alive? What was the quality of life like for them?
Due to the advancements in medical technology people are living longer today than they did in the past, and most experts expect that trend to continue in the future.
What other sources of income will I have?
As a federal employee your FERS retirement package is a cornerstone in supporting your income needs in retirement and when combined can be worth millions of dollars. The three retirement plans that comprise this are: the FERS basic benefit, Social Security and Thrift Savings Plan. Taking the time to learn the key components and nuances of each of these plans will go to great lengths to maximize your retirement income.
The FERS basic benefit plan provides a lifetime of income to a retiree, which means regardless of how long you live in retirement, you can never exhaust the benefit. The amount of money you will receive depends on certain factors such as age, years of employment service, and salary.
Social Security is a retirement plan for most Americans and like FERS retirement income you can never exhaust the benefit. The amount of this benefit depends on your earnings over 35 career earnings, and when you elect the benefits. You can keep track of your social security benefits by registering to receive a Personal Earnings and Benefits Estimate Statement online at https://www.ssa.gov/myaccount/.
The Thrift Savings Plan is a retirement program that provides you with an opportunity to increase your retirement income by investing in the markets. You can contribute up to $19,000 a year ($25,000 if you are 50 or older) into the program. Additionally, your employer matches up to 5% towards this program. The TSP is a great vehicle for employees to increase your retirement income. Keep in mind, a major difference between FERS and Social Security with the TSP is that there are no guarantees that your income will last throughout your retirement.
In addition to FERS, Social Security and the TSP, make a list of all the other sources of income you have that can be used towards meeting your retirement income needs.
Calculating the Cost of Retirement
Regardless of your age, or how many years you have before you’re eligible to retire, we have a simple worksheet that you can use to determine if you are on track. Assessing your situation and funding sources will give you a good indication of the lifestyle you can expect during retirement. An effective retirement plan identifies your retirement goals, shows you how to take advantage of all your funding sources, and accounts for taxes and inflation.
Our worksheet provides a rough estimate of the cost of retirement you may face in the future, but more importantly can help you determine if you are on track to meet your income needs as well as what additional savings requirements you need to set aside to put you back on track.
Send us an email if you would like to receive this complimentary worksheet at [email protected]
—--
James De La Torre has conducted federal benefit and financial planning seminars all over the country. He is a keynote speaker at federal conferences and works with federal professional organizations on ways to improve the communication of federal benefits to their membership. Jim has appeared as a guest on “Fed Talk” on the Federal News Radio network, discussing the gaps in federal benefits and the financial impacts employees face. Jim holds a Charter Retirement Planning Counselor’s (CRPC) designation from the College or Financial Planning and is a member of the Financial Planning Association. Please direct questions or comments directly to James at [email protected].