To know if you have enough for retirement use this method to Calculate your Needs - Alldamoney

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To know if you have enough for retirement use this method to Calculate your Needs

As retirement age approach, many people start wondering if they have enough funds to last through the course of their retirement.

I mean you've been working most of your life and retiring may sound appealing. You could have the lifestyle desire; avoid work stress, while spending more time with your grandchildren.

While it is not possible to predict all the variables in our lives,  like the future rate of inflation, a car breaking down and needing replacement, even our own longevity.

But accurate projections can be allocated to them. For example, how do you know how much money is enough? What will your healthcare needs be, as this is often the biggest expense in retirement.
The methodology used

The calculations give general projections on how much money you need to retire and the results presented as future money (at retirement) in today's money, using an inflation rate of about 2.3%.
In the model it is assumed the individual will live up to age 92 however, there are discrepancies  as they could make it to 100 years or incur huge medical bills early on retirement that might raise costs.
All calculations are pre-tax and income, such as pensions and annuities, are not factored into the calculations but Social Security is.
How savings goal is calculated
To calculate what your future income will look like at the time of your retirement, first you need to grow your current income at an annual rate of 3.8% (the inflation rate of 2.3%, plus the salary growth rate of 1.5%). That is to say it is assumed you can live comfortably off 85% of your pre-retirement income.
For example, let’s say you earn $100,000 the year you retire, then you need $85,000 during the first year of retirement. Your income is then by 2.3% for each subsequent year, to keep up with inflation. Social Security is then factored in by subtracting your estimated benefits (more of this is discussed below) since the amount you will need to save is reduced by that income.
In order to generate enough income for each year of retirement the total savings you will need at the time you retire is calculated. To do this, what it would cost to purchase a fixed income annuity, with inflation-adjusted payments are calculated using a discount rate of 6%. Your target savings goal is therefore the cost to purchase the hypothetical annuity.
To calculate the amount you need to save
Your future income estimated by growing your current income at a rate of 3.8% (the inflation rate of 2.3%, plus the salary growth rate of 1.5%) to figure out how much you will save by the time you retire. Then, the sum of your annual contributions between now and retirement is determined by assuming your current savings and future contributions are invested and will earn an average annual rate of return of 6%.
Your Social Security benefits
Your Social Security benefits are estimated based on the assumption that you will work for 35 years and start benefiting collections at 67years.
If the benefits are invested (together with your savings) and grown at the average rate of return of 6% We use your estimated pre-retirement income to calculate your estimated annual Social Security benefits, based on current benefit formulas and accounting for inflation.
One of the most important decisions you can take in life is developing the right retirement plan, as it will determine the quality of life you will live during retirement.

Important factors that could affect your retirement income include whether your spouse will have retirement income, the timing of your retirement, and if you will have any additional income from other sources like real estate and the economic future situation in your country.

Therefore, it’s important to educate yourself about all the options now and if possible engage a financial advisor to help you make retirement planning in order to calculate your future income better.

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