The average yearly income you will need when you and your partner retire depends on your age, the amount of money you have saved, your debts and retirement needs. When planning your retirement, consider how much money you will need to live comfortably and worry-free. To learn more about saving for your retirement needs, consult with a financial planner.
Initial Factors to Consider
When you begin to plan for retirement, you need to determine the amount of money you will need to pay for expenses and hobbies every month, and multiply this figure by 12. This is the minimum amount of money you will need to save for each year of retirement. Expenses to remember while planning include debts you will still have, mortgage or rent, food, your health, membership fees, utilities and insurance premiums. Then, consider expenses you may need to pay in the future that you do not have now. These expenses could come from hiring a nurse to help you or your partner at your home, increases in services costs for items like cable television, monthly prescriptions and even those from pre-planned funerals. You should arrive at an estimate of what your minimum average yearly income needs may be after you retire.
Planning for the Unexpected
The unexpected can come in various ways. Being prepared can help minimize the impact these events have on your finances during your retirement years. When considering the average amount of money you will need for each year of retirement, also think about some of the worst-case scenarios that could happen, so you can make plans now to reduce risks and recover quickly. Factors to consider include losing your job before you retire, stocks you purchased losing value, long-term care needs from a serious illness and recovery from a natural disaster. The cost of supplemental insurance plans, claim deductibles and the way you currently save money for the future are important considerations when figuring your average yearly retirement income.
The U.S. Department of Labor (DOL) states you should not neglect the effects of inflation when calculating your retirement income. While retirement planning worksheets may advise factoring in a 3.5 percent rise in prices per year, it is better to look at inflation trends over the last decade. The DOL says that prices rose 13.5 percent in the year 1980, but the year 2002 only saw an inflation rate of 1.6 percent. The DOL also advises that retirees spend about 20 percent of their yearly income on medical expenses, which experts believe will see an inflation rate of 7 percent per year. After adding the cost of inflation and planning for the unexpected, you will have a more accurate idea about the average yearly income you and your partner will need once you retire.
Distribution Strategy Planning
According to Jane Bryant Quinn in an article for “AARP,” an important part of figuring out how much you need to save is how much you need to withdraw from your savings. Bryant Quinn suggests that you should not withdraw more than four percent of your total savings during the first year of your retirement. For example, if you have $100,000 saved, you should not withdraw more than $4,000 during your first year of retirement. For every year you are retired, increase the amount of money you withdraw in accordance with the inflation rate. With this knowledge, you can then determine if you have enough money saved to live comfortably when combined with your pension and Social Security.