Building A Retirement Plan
What does it take to draw up a retirement plan? Here are the steps you’ll need to go through:
Step 1: Define your retirement goals
- How much do you estimate you will need, to retire with the lifestyle you hope to have? You can use a retirement calculator to work it out.
Step 2: Assess your current situation
- Review your finances to see if you are on track to reaching your retirement goals.
Step 3: Close your savings gap
- How can you accumulate funds for your retirement?
- Cut spending and save more.
When You Plan To Retire
The age you plan to retire can have a big impact on the amount you need to save, and your milestones along the way. The longer you can postpone retirement, the lower your savings factor can be. That’s because delaying gives your savings a longer time to grow, you’ll have fewer years in retirement, and your Social Security benefit will be higher.
Consider some hypothetical examples . Max plans to delay retirement until age 70, so he will need to have saved 8x his final income to sustain his preretirement lifestyle. Amy wants to retire at age 67, so she will need to have saved 10x her preretirement income. John plans to retire at age 65, so he would need to have saved at least 12x his preretirement income.
Of course, you can’t always choose when you retirehealth and job availability may be out of your control. But one thing is clear: Working longer will make it easier to reach your savings goals.
C How Much Do You Need To Save Up
To calculate this amount on an annual basis, you will need to subtract expected government pensions from the annual expenses you calculated in Step A, and then multiply the remainder by 25 .
For example, a couple who estimate their annual retirement income needs to be $70,000 will need to save:
| Annual expenses in retirement from age 65 | $70,000 |
| How Much Do You Need To Save For Retirement? c | $977,625 |
a. Most individuals will not get the full government pension amount from OAS and CPP. The amount here reflects 70% of the maximum CPP amount for a couple in 2021 i.e. moderately conservative estimate. b. Line 1 minus line 2c. Derived by multiplying the annual income withdrawn by 25 or dividing by a 4% withdrawal rate . The result is the same for both formulas.
As shown in the table above, government pensions offset some of the savings required by the couple pre-retirement. The more government pension they qualify for, the less money required in their investment portfolio.
Additionally, if one or both partners have a defined benefit pension, it will further lower the amount of savings required to meet their desired retirement income.
Overall, to fund their preferred retirement lifestyle, the couple in the scenario above will need about $1 million in their retirement nest egg.
Related: CPP and OAS Benefits for Surviving Spouse and Children
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Life Expectancy Increases With Age
Suppose youre 90 years old what is your life expectancy at this age? It clearly cant be the national average of 79. Based on mortality tables, the Social Security Administration calculates that an American who is 90 will live another four years on average. So if youre 90, then your life expectancy is 94. Similarly, an American who is 65 will live another 18 years on average, so their life expectancy is 83.
This factor by itself, then, could add about four years to the life expectancy someone should plan for based on a retirement starting at age 65.
Taking Care Of Our Dependents As Well
As we move towards our retirement years, we would need to think about our dependents and their quality of life after we are gone. While we may imagine our retirement years to be happy, in good health and surrounded by our family, sometimes, life can take a turn for the worse when we least expect.This could be a sickness that requires a huge amount of money for treatment or expensive long-term care that we didn’t plan for, which could place a financial burden on our loved ones. It is thus important to ensure we’ve got our healthcare expenses covered with the appropriate insurance.For those who have dependents, you may want to think about leaving them with a sum of money that can help them maintain their quality of life after you have passed on. This can be in the form of a life insurance that you’ve paid for.
Talk to our financial consultants today!
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Forced Early Retirement Wont Be So Scary
Retiring at 55 is great when its part of your plan being forced out of your job early isnt. Unfortunately, nearly half of all current retirees arent retired by choice. Most were laid off or forced to leave their jobs, and a smaller number had to leave work prematurely to care for an ill or aging parent or spouse.
If you have to leave work before youre expected retirement age, youll be in a much better position if your retirement plan is already in place.
You might not have your nest egg completely built up, but having money set aside for retirement gives you more options and time to adjust your plans if you need to retire early.
Assess Your Current Situation
Nobody likes to admit they might be ill-prepared to retire, but an honest assessment of where you are now financially is vital in order to create a plan that can accurately address any shortfalls.
Begin by counting how much you have accumulated in accounts earmarked for retirement. This includes balances in individual retirement accounts and workplace retirement plans, such as a 401 or 403. Include taxable accounts if youre going to use them specifically for retirement, but omit money saved up for emergencies or larger purchases, such as a new car.
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Stay On Track For Retirement By Knowing How Much You Need To Save By What Age
A key part of retirement planning is to answer the question: How much do I need to retire? The answer varies by individual, and it depends largely on your income now and the lifestyle you want in retirement.
Knowing how much you need to save by age can help you stay on track and reach your retirement goals. There are a few simple formulas that you can use to come up with the numbers.
Consider How Inflation Will Affect Your Savings
Inflation is the rising cost of consumer goods and services. It’s measured by the Consumer Price Index . The CPI measures changes in the price of about 600 consumer goods and services over time.
You can look at the impact of inflation in two ways:
- it will increase the cost of goods and services you buy
- it will reduce the buying power of your savings over time
For example, a $100 purchase in the year 2006 costs approximately $118 is 2016.
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Other Sources Of Retirement Income
Home Equity and Real Estate
For some people in certain scenarios, preexisting mortgages and ownership of real estate can be liquidated for disposable income during retirement through a reverse mortgage. A reverse mortgage is just as it is aptly named â a reversing of a mortgage where at the end , ownership of the house is transferred to whoever bought the reverse mortgage. In other words, retirees are paid to live in their homes until a fixed point in the future, where ownership of the home is finally transferred.
Annuities
A common way to receive income in retirement is through the use of an annuity, which is a fixed sum of periodic cash flows typically distributed for the rest of an annuitant’s life. There are two types of annuities: immediate and deferred. Immediate annuities are upfront premiums paid which release payments from the principal starting as early as the next month. Deferred annuities are annuities with two phases. The first phase is the accumulation or deferral phase, during which a person contributes money to the account . The second phase is the distribution, or annuitization phase, during which a person will receive periodic payments until death. For more information, it may be worth checking out our Annuity Calculator or Annuity Payout Calculator to determine whether annuities could be a viable option for your retirement.
Passive Income
Inheritance
How To Plan Save And Invest For Retirement
Ask anyone who’s retired, and they will say to start saving for retirement as soon as you can!
Even if it seems a long way off, it pays to start planning for retirement as early as possible. How much you need to save will depend on your own circumstances, but the sooner you start, the better the position youll be in when you eventually stop working.
WhileNZ Super can help get you by, it’s your own savings and investments that will help to make retirement more comfortable and enjoyable.
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Reasons Why Retirement Planning Is Important
A friend of mine, we’ll call him John, recently wanted to know why retirement planning is important.
Perhaps you’ve pondered the same question.
John is well educated and enjoys a successful career. Like many people, John is busy and simply didn’t feel like there were enough hours in the day to tackle one of the most important decisions in his life.
Moreover, even with access to 15 of the best retirement checklists available, he simply didn’t know where to start.
A lack of time and a feeling of being overwhelmed is what made him hesitate about tackling retirement planning in the first place.
Starting In Your 20s And 30s: Early
Your early career is the ideal time to start saving and making it a habit. Set aside a little of each paycheck before you get used to having the full amount at your disposal.
When you become financially independent, create a budget that includes retirement savings.
This is a time to become comfortable with your finances. People who are financially literate are generally better able to handle money and less likely to run into problems.
Participate in your employers retirement savings plan. At minimum, the automatic payroll deductions will make saving easier, but you might also receive a tax benefit from saving pretax funds. And if your employer offers matching funds, take advantage of them. Do not leave free money on the table.
This is also a good time to establish a pattern of living within your means and avoiding the temptation to buy more as you earn more. If you buy a house, for example, make sure you can afford the mortgage payments. You dont want to be house poor.
The earlier you start, the more time your savings will have to accumulate and compound. Compounding is key here. This means that your interest will earn interest and that interest will earn interest and so on with every passing year. This increases the chances of you enjoying a comfortable retirement. It also decreases the amount you will need to save every year.
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What Sort Of Retirement Lifestyle Do I Want
What will your cost of living be in retirement? Some costs may go up while others may go down. If you have children, they will probably be financially independent.
Our retirement calculator includes figures for more of a no frills lifestyle, or one with a few more choices, based on what retirees are spending these days. The first is pretty basic the second is more comfortable with some luxuries and treats. For example, a lifestyle with more choices for a couple living in the major cities might be $1423 a week, while it might be more like $1137 if they are living in the regions.
You also need to think about what your goals might be in retirement travelling to new places? Joining clubs, going out to dinner and shows? Much of this depends on whats on your bucket list.
The Boring Glory Of Index Funds
Your best bet is to buy something called an index fund and keep it forever. Index funds buy every stock or bond in a particular category or market. The advantage is that you know youll be capturing all of the returns available in, say, big American stocks or bonds in emerging markets.
And yes, buying index funds is boring: You usually wont see enormous day-to-day swings in prices the same way you may if you owned Apple stock. But those big swings come with powerful feelings of greed, fear and regret, and those feelings may cause you to buy or sell your investments at the worst possible time. So best to avoid the emotional tumult by touching your investments
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Plan For Spending Down Your Portfolio
In retirement, life is often unpredictable. When youre creating an income plan that needs to last a long time, its best to be proactive in your planning. Consider all the possible expenses that could come your way. We like to discuss the possibility of higher health care costs, higher taxes, helping a family member financially and divorce, among other things. You should create a plan with the flexibility to take into account these unforeseen possibilities. Most people are reactive, and when something happens theyre caught on their heels.
How To Plan For Retirement
6 Minute Read | December 22, 2021
When it comes to retirement, most people find themselves either sitting in the regret of past money mistakes or winning big-time with money and on track to enjoy a retirement theyve always dreamt about.
Heres the difference: Those who are on track to reach their retirement goals have a plan. Theyre intentional, focused, and they took the time to really think about what kind of future they wanted. And then they started working their plan with full-speed ahead intensitythey didnt let anything get in their way!
Do you have a retirement plan in place? Listen: Retirement planning isnt an old people thing. Its a smart people thing. And its never too early to start planning for your retirement future.
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Work With A Financial Advisor
Many Americans falsely believe that they will be able to live on less income when they retire because their spending needs will go down. But unpaid mortgages, unexpected health expenses, relocating to a retirement community and even checking off bucket-list goals like travel and adult education can eat your retirement funds fast. That is why working with a financial advisor early can help you create a multi-stage retirement plan that optimizes your investments and savings for your retirement goals.
A financial advisor can help you break up your retirement plan into actionable steps, like these:
Are Trusts Worth It
People usually set up trusts so they no longer legally own their house or other assets, but can continue to use and enjoy them as beneficiaries of the trust. The most common types of trusts used by retirees are family trusts and funeral trusts both are worth exploring thoroughly beforehand to make sure they work as you need them to.
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> download Now: 15 Free Retirement Planning Checklists
As he quickly found out, there are a lot of reasons why retirement planning is important for just about everyone – regardless of education or wealth.
For starters, retirement can last a lot longer than you think. According to Money Guide, a 65-year-old married woman today has a 50% chance of living to age 90!
That means its entirely possible your post-career phase lasts 25 years or more. Your life expectancy may be a lot longer than you anticipate.
Thats great news if youre well prepared. But, if youre retirement planning is a priority, living longer can be a little terrifying.
The fact is, the average Social Security check in 2020 is only about $1,500, which isnt nearly enough to maintain pre-retirement standards of living for many individuals. Social security benefits simply dont provide the income necessary for a comfortable retirement.
Medicare, which is the primary insurer for seniors in retirement, doesnt cover the healthcare costs many seniors will encounter as they age.
Someone turning 65 this year has a 70% chance of needing long-term nursing care women, on average, need over three years of supportive care as they approach the end of life. Only 20% of todays 65-year-olds wont need long-term supportive care.
Its more important than ever to have a realistic retirement savings goal and a solid plan for achieving it.
Why is retirement planning important? Here are nine powerful reasons.
Use Caution With Retirement Savings Benchmarks
General benchmarks, such as Fidelitys savings factors and calculations based on your expected replacement income or withdrawal rate, provide an acceptable starting point for determining whether you are on the right track with your retirement savings. For many people, the savings amount that these benchmarks reveal will serve as a healthy wake-up call about your retirement.
But it’s important to know that these are simply milestones and can be somewhat of a moving target. A good retirement plan requires more than a one-size-fits-all approach.
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