You have multiple options to save for your retirement, but you need to understand your retirement age and savings goal so that you can organize your investments properly. The best way is to use a retirement age calculator because it can show you the right age you can retire, but this depends on various things. This includes your current savings strategy, the amount of money you need to save to have a comfortable retirement.
Remember that a retirement age calculator can also help you to compare your expected retirement goal and your current strategy. This article discusses how you can use a retirement age calculator.
A retirement age calculator
To use a retirement age calculator, you need to input your current savings, finances, and future investment strategies. This means that you have to know the time you may have adequate money to retire, the amount of cash you need to save for retirement, and the estimated total income during your retirement.
There is a chance that you may not know the age when you have to retire. The good thing about a retirement age calculator is that it can help you to determine the age you can retire, but this usually depends on your expected return on investment and your current savings rate.
Most retirement age calculators tend to have some common components. This includes your current age, so you need to input your current age. You should also input the amount of money you have currently invested for retirement.
Also, you may have to enter the amount of money you invest for your retirement each month, input the amount of money you desire to have at retirement, and enter the amount of money you intend to have at retirement.
For instance, if you are 30 years old and you have saved $50,000 for retirement, save $500 each month, expect an annual interest rate of 7 percent and desire to have $1 million before you retire, then you can retire when you are 60 years old. This means that you can invest at least $229,000 and the interest you can earn will be about $774,071 to bring the total to about $1 million.
Calculating the amount of money you need at retirement
Retirement planning is important and you need to calculate your retirement age as well as the amount of money you have to save before retiring. Keep in mind that some of the common retirement savings options include employer-offered retirement plans like social security, 401 (k), investments, and savings.
You can decide to replace a significant portion of the pre-retirement income. In most cases, people live more than 20 years after retirement. Therefore, you need to make sure that you have enough money saved and invested so that you can sustain your lifestyle for many years after retiring.
You can calculate the amount of money for your retirement by basing the calculation on income. Most financial experts agree that a replacement percentage of between 70 and 85 percent is ideal. For instance, if your current income is $50,000 each year, then your retirement goal can be to live on at least $35,000 to $42,500 each year. However, it can be hard to follow this rule of thumb, especially when you are in early stages of your life or career.
The income you currently get now may not reflect the amount of money you can earn later in life or even what you may expect to spend in later stages of your life. It can be challenging to estimate the amount of money you desire to have in your retirement if you are not sure what your pre-retirement income can be.
It’s also assumed that most people spend most of what they earn. But if you like saving some money and spending a smaller percentage of money each year, then it may not make sense to utilize this method to calculate the retirement savings. And, if you spend more cash than what you earn and rack up credit card debt, this method can also not work for you.
You can also base your calculation on spending. For most people, a good approach to calculate retirement savings is simply by basing the calculation on spending rather than income. Remember that this method can be suitable for anyone regardless of whether you are a saver or a spender.
You should note that the amount of money you spend in retirement can differ from what you currently spend. For example, you can decide to pay off the mortgage before retiring, meaning that you can have a monthly mortgage payment. But if you have kids and they live on their own, you don’t need to financially support them. There is also a chance that you may not have costs related to work, such as commuting, child care, and business attire.
But you may have some new expenses during retirement. One of the biggest financial concerns for most people is medical care costs, such as out-of-pocket prescriptions. Unfortunately, health care tends to be expensive, so it makes sense to have enough money saved to make sure that you may cover these expenses without incurring debt or even burdening your children.
And, you may also have to outsource your housekeeping tasks like cleaning gutters, shoveling snow, and raking leaves. You can find it hard to do these activities or possibly not desire to handle them in your retirement. Most retirees also tend to use their retirement years to explore hobbies and travel, which can be quite expensive. Because your current expenses may decrease, you can also have new ones during retirement, so you can assume that what you are spending now is close to the amount of money you may have to spend in the future.
You should remember that you need to evaluate and diversify your investments so that you can optimize your returns. In this way, you can increase your retirement savings. Your investments can be more secure when you are older. Annuities, traditional retirement accounts, and other secure investments are suitable. But younger people who want to save their money can benefit from compound interest or diversify their portfolio by opting for riskier investments with high rate of returns.