Why should I save for my retirement? Isn’t my company and the government going to provide my retirement income? Not only will I be earning more in the future, but I’ll also be able make up any time I lost.
Many Americans believe that providing for their retirement should be the responsibility of someone else. Over the past decade, savings rates have fallen and many people are taking money from their savings to make ends meets.
However, it is a fact that many people are not planning for your financial future. Too many people are not financially prepared for retirement.
According to the Boston College Center for Retirement Research’s National Retirement Risk Index, 43% of households won’t have 90% of the assets necessary to sustain their lifestyle in retirement. Generation Xers are worse off, with 49% failing to prepare adequately for retirement.
The answer is not in government. Federal government is feeling the effects of its excessive spending habits. Bush intends for the federal government spend $2,885 less per taxpayer than it expects in taxes in 2007. Around 25% of your tax money goes to paying the interest on the national loan. The federal budget’s fastest-growing part is the debt payment.
Social security is in a worse place than it was before. The government spends all the Social Security taxes that are not collected. They deposit IOUs in bonds to the Social Security Trust Fund. The Trust Fund is a collection of pieces of paper that promise future benefits. It does not have any real assets. The Social Security system will begin paying more in benefits than it receives from taxes by 2017, according to the company.
Foreign competition is also affecting businesses. Large corporations find it increasingly difficult to fulfill their promises to their retirees to pay for their medical care. Some US companies have had to declare bankruptcy or threaten to declare bankruptcy due to competition from foreign companies offering few benefits for employees.
The stool that holds the three “legs,” of retirement security (the government and your company) is beginning to wobble. Two of those legs are becoming very weak. This gives you more responsibility.
You will likely live another 30-40 years if you retire at 65. It is important to plan for a retirement nest fund that will provide financial security for your family for at least 40 more years.
A retirement savings calculator is the best way to figure out how to retire well. This calculator will allow you to see the growth of your retirement savings over your working years and the value of your savings when you retire.
You can adjust how much you save, your rate of return on investments, the expected inflation rates during retirement, the amount you expect to receive in pension and Social Security, and other factors. This will help you create a plan that will last you as long as you want.
These are the key factors that will impact the amount and longevity of your retirement savings.
– Current annual income
– The percentage of your income that you put towards retirement
– The number of years you will be retired.
– The percentage annual increase that you anticipate in your annual earnings
– The percentage of your final earnings that you will spend if you retire
– The amount of your Social Security and pension you are expecting to receive
– Inflation rate during your retirement years
– The amount that you have currently invested in retirement.
– Average growth rate for your investments
You can increase your chances of a prosperous retirement by entering different values into a retirement savings calculator.
Let’s take a look at an example.
Imagine you’re 25 years old and have a job earning $50,000 per year. You don’t have any savings. Expect to see an increase in your income and inflation of 4% each year. You believe that you can invest with a 8% tax-free rate of return. For retirement, you’ll need 60% of your income over 40 years. You will continue to invest 8% of your income in retirement.
You can expect to retire with a $35,000 annual pension from your employer and $20,000.0 in Social Security.
After 40 years of investing and earning, you can expect your retirement nest egg to be approximately $1.765,658 at age 65. This sounds great, but your first annual retirement spending will be approximately $144,031. Your investments will provide you with 29 years of inflation-protected income before they run out. You will be reliant on your Social Security and pension for income, which could significantly lower your standard of life.
Your retirement nest egg could have lasted 45 years if you had saved 10% instead of 8% of your income. This tiny change will allow your investments to last you the rest of your lives.
It is easy to see how small adjustments can make a big difference in your quality of life in the future.
You can reduce the amount of adjustments that you will need to make to your retirement savings plan by using a retirement calculator as soon as possible. It’s never too late to ensure a successful retirement.
