Determining retirement income is difficult, but simple rules of thumb can help. Social security and pensions are no longer reliable, so personal investments are necessary. Monthly costs, life expectancy, and potential secondary income should be considered. Saving 15% of current income can help build a sufficient nest egg.
Determining your retirement income can be a stressful exercise, especially when the economy is troubled and many investments appear questionable. The question of how much retirement income you need to survive is a difficult one and ultimately something only you can decide, but a few simple rules of thumb can help you hit some broad numbers. Once you know how much money you need to earn each month, you can figure out how much money you need to set aside to have a steady income to survive on. With the market uncertain, it’s a good idea to bank a little more than absolutely necessary, to make sure you never find yourself in a situation where the money runs out late in life.
First of all, it’s important to recognize that while Social Security and company pensions may have once supported people in retirement, these days are largely over. And unless things change substantially, they’re unlikely to come back again. This means that you will have to count on earning all the necessary retirement income yourself, through your investments. Should those social safety nets reappear, you’ll simply find yourself in an even stronger position, and if not, you’ll still be able to support yourself.
One thing you will ask yourself is if you are planning to retire completely or if you are going to continue working a little. The whole concept of retirement is actually quite recent, originating in the Great Depression, when people were trying to push older, less productive citizens out of the workforce, to make room for younger, largely unemployed workers. Nowadays, it has again become quite common for people to work their entire lives, often voluntarily. Many people actually retire from their main career and then find side income through a new career, often something they have wanted to pursue in their life, but have never had. If you have this type of secondary retirement income, the amount of money you need to save to retire may be slightly less.
To calculate how much retirement income you need to survive, you need to look at your monthly costs. If you own your own property, this will likely include insurance costs, medical bills, travel, food, transportation and repairs. Later in life, you may also need to calculate the cost of some sort of assisted living staff. If you don’t own your home, you’ll need to calculate rents as well, and figure out how rents might increase over the course of your lifetime.
You will also need to look at how long your life expectancy is and there are various actuarial charts and tables that can help you determine a probable age. It’s also a good idea to add a few spare years to this age, so you don’t find yourself in your later years without any spare funds. By taking your calculated annual expenses and multiplying them by the number of years between retirement and your projected life expectancy, you’ll get a framework of what your total retirement income will be.
From this, you can then calculate how much money you will need to make each month and from there you can determine how much money you will need to have invested in order to have a steady income. If you have the finances, it’s best to be able to live on just a fraction of your interest, as this will ensure that you always have the finances no matter how long you live. And while calculating all of this may seem a little daunting, as a simple fix most young people find that if they can save about 15% of their current living income, they’ll likely have enough of a nest egg saved up by the time they’re ready to retire.
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