Are you ready for retirement? Most people would emphatically say, “No!” In today’s economy, retirement is being delayed to a later age. However, most people do plan to retire sometime.
Valerie RumboughHow can you know if you have saved enough? There are a few simple steps you can take to determine how much you will need and how long it will take to get it.
First, determine your annual income requirements. Looking at your budget now will be a good indicator. Typically, your retirement income needs will be approximately the same as they are currently, factoring in an additional amount for inflation. If, for example, you need $50,000 per year now, factoring in a 3 percent inflation rate, you will need approximately $65,000 per year in 10 years and $100,000 per year in 25 years.
Once you determine your annual needs, divide that amount by 4 percent to see how much you will need in the bank on the day you retire. Most likely, this will allow you to withdraw 4 percent annually without worrying about outliving your savings, which is important, considering longer life expectancies. Once you know your “target” retirement date account balance, determine how much and how long you need to save to get there.
Someone saving $2,000 per year for 25 years would have approximately $100,000 at a 5 percent annual return, and $200,000 at a 10 percent return. These are very broad numbers, but they can be used to help you plan your retirement strategy. The best way to do this, however, is to seek the advice of a CPA or financial planner. They have the computer software that can help you calculate several scenarios.
As you begin to save, be sure that you monitor your account on a regular basis, at least annually. You want to be sure you are on track, and if not, you can make adjustments along the way to get you back on track before it’s too late.
Planning is very important here, and God blesses us when we use His wisdom to make the right plans.
– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.