Sound retirement planning is critical to your future financial security. Social Security benefits may not provide enough income for your retirement years and few employers today offer traditional company pension plans that guarantee retirement income for employees. Fortunately, retirement planning is becoming easier than ever with the use of online tools and reference materials. Here are some of the basic steps to take to get started planning for retirement.
Calculate How Much Money You Need
During your retirement years, you will need a percentage of your current income to pay your expenses, generally ranging between 60 to 85 percent depending on the type of lifestyle you would like to lead. There are a number of online retirement calculators available that will calculate the amount that you must save to have a comfortable retirement using your current income and expenses as guidelines.
When calculating the amount needed for retirement, use your current expenses as a starting point for your retirement planning. It is important to take inflation into account as well. Over the past 20 years, the average annual rate of inflation has been about 2.4 percent.
While this will provide you with a rough estimate of the amount you should try to save for retirement, you must remember that there is no way of knowing what your financial situation will actually be when you decide to retire. Making this number the minimum amount to aim for allows you to hedge your chances of running out of money during retirement.
Figure Out How Much To Save
Once you have estimated your retirement income needs, figure out how much you will need to save in personal retirement savings after your estimated future assets and income are deducted from the number. Remember that retiring younger and living longer means more money must be saved to provide a reasonable income during your retirement years.
Compounding interest and investment earnings will help your money grow faster as the years go by, so getting started as early as possible is key to your future success at reaching your saving goal. Have the amount you intend to save deducted directly from your paycheck and automatically invested in accounts of your choice to automate the process and make it simpler to save consistently.