Retire from job!!Calculating how much income you will need for retirement isn’t necessarily an easy task. Your health expenses will probably increase, but your home loan/personal loan payments, or Credit Card EMI may decrease or stop. Meanwhile, other expenses might continue to change over time.
Of course, you likely won’t have to deal with income taxes as much. Chances are you will also see expenses tied to employment, from transportation to a professional wardrobe, decline as well. But other costs may appear in retirement, from pursuing long-sought hobbies to traveling or spending more time with loved ones. Although you may not even know where to start when trying to estimate how much retirement money you will need, there are a few rules of thumb that you can follow to help get you started.
Table of Contents
Start With Your Current Lifestyle and Income
The first thing to look at is the amount of income that you need right now. This will give you a baseline to work off. Say your current lifestyle costs Rs.600,000 of income per year to support. Your future retirement lifestyle will probably need an income that is somewhere near that level, unless major medical expenses arise (which can happen).
You want enough, or better yet, more than enough annual income to cover your retirement spending needs. If you need help getting started with your expected retirement expenses, here are the common areas of retirement spending:
- Housing: Rent or home loan payments, property taxes, property repairs and maintenance
- Food and grocery
- Utilities: Fuel, electric, telephone, cell, water, cable TV
- Transportation: car payments, auto insurance, gas, car upkeep and repairs, public transportation
- Insurance: medical, dental, disability, life, long-term care
- Healthcare costs not paid by insurance: deductibles, co-pays, prescription drugs
- Care services for parents or loved ones: costs for nursing home, home health aide, or other type of assisted living services
- Recreation: eating out, entertainment & hobbies, travel
- Debt: personal loans, business loans, credit card payments
- Taxes: income tax, capital gains tax.
- Education: personal student loans, children’s student loans or educational expenses, grandchildren’s student loans or educational expenses
- Gifts: charitable and personal giving
- Miscellaneous: personal caretaking, club memberships, subscriptions, pets, so on
How Long Will Your Retirement Last?
You will need to decide the age you wish to retire and how long you expect for your retirement to last. That will determine how many years of annual income you will need that you were estimating above.
Family history and your personal medical history can provide strong clues of how long you might live for. Nevertheless, err on the side of caution and use a prudent timeline for your planning. A 30-year span or longer is a conservative time window to use in your income planning.
Identify Your Sources of Retirement Income
From there, identify your sources of income. What sources of retirement income will be available to you? Does your employer offer you a pension?
Your other sources of income are likely to include a PF/NPS and other places you might hold investments. How much cash-flow you receive from these sources will depend on how much you have invested, the returns you earn, and their taxable status.
If you keep working in retirement, your earnings can be another source of income. If you do find any shortfalls between your future annual retirement income needs and what your retirement assets will generate, act now. There are a variety of steps you can take to overcome the gaps:
- Cut back on expenses now so you have more to save.
- Delay retirement by working longer and putting away more of your earnings for retirement savings.
- Change your retirement goals and lifestyle expectations so you don’t need as much money.
- Work part-time in retirement to supplement your other income sources.
- Look for ways to supplement the gaps with income-supplementing mixes of higher-growth investments and annuities.
These measures can go a long way towards funding the retirement income gap between your current income and your projected retirement income. What if it looks like you won’t have enough assets to pay for your retirement long-term? Then consider pursuing a strategic combination of these measures to help fill in the gaps.
GET TIPS TO RETIRE FROM JOB EARLY NOW !!
Ask an experienced financial professional for guidance in determining how much money you will need for retirement – and for exploring your options to generate reliable income. They can help you build a rock-solid strategy that lets you enjoy a predictable lifestyle for the long haul.
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