Retirement Planning

It’s no fun to think about your own death, and life expectancy does vary by demographic group, but individuals should at least plan to live to 85 years of age for the purpose of retirement budgeting. Most people can maintain their pre-retirement standard of living on only 60 to 80 percent of their former earnings. So, it’s a simple calculation then for how much will be needed annually. For those earning more than $50K per year, a target of 60 percent of their pre-retirment income is usually adequate. Those earning between $20K and $30K will probably continue spending as much as 80 percent of their work income in their retirement years.

While city, state and federal government employees, veterans and those on disability will probably continue to receive supplemental income in their retirement, for most workers, retirement contributions from the government will be limited to social security benefits. Individuals have options as to when they can start to receive these benefits, but the total amount they receive will be reduced if they take them prior to reaching full retirement age.

But Social Security alone is not enough! The major attraction of retirement accounts like IRAs and 401(k)s is they defer taxes if maintained through an employer, and they often will grow through employer contributions over and above those deducted from wages or salary. A retirement budget should account for the fact that-unless the retirement was funded with after-tax money-income taxes become due upon withdrawal. Also, there are harsh penalties for early withdrawal.

In addition to retirement savings accounts, a retiree should draw their income from a diversified portfolio of investments. The most common include certificates of deposit, real estate income, and annuities, as well as stocks and bonds. Securities-such as CDs, bonds and annuities-will generate steady, dependable income over time, as will real estate and dividend-paying stocks. By making relatively small contributions over time, these investments can add up in a big way through the power of compounded interest. the latter few especially so, but they come with added risk as well. And, another source of income for some retirees is a part-time, low stress job that can pass the days, help them meet new people, and help fill any gaps in a retirement budget.

It’s never too early to start planning for life after employment by making a retirement budget. In general, once the financial need is determined, a retirement budget works by letting money saved over time do the work instead of the person. The earlier you start the more painless the whole process of saving will be. A small initial investment in conservative investments can grow exponentially if given enough time.