Planning for Your Retirement: It’s Never Too Late

by Redeeming Riches on April 30, 2014

Retirement? How can you think about retirement when you’re having trouble paying your mortgage and you’re about 30 days from the curb? Your job is a little shaky right now too. On top of that, you just had to drain your savings for an emergency. Fortunately, even if you’re having a boatload of financial problems, there’s always a way to start saving for your future.

Reverse Engineer Your Income Requirements

Don’t over-think this one. You already know how much you need to pay your bills. What you have to do is take this figure and extrapolate it out into the future. Sound hard? It’s not, really. Add up all of your personal expenses, including debts, and the resulting number is the amount of money you would need right now if you were to retire today.

Of course, you won’t be retiring today. You’ll be retiring maybe 20 or 30 years from now. As a general rule, you’ll want to replace roughly 80 to 85 percent of your working income. So, if you’re making $50,000 a year, you’ll need $40,000, minimum.

Discover How Much You’re Expected To Have

Your Superannuation will probably provide the bulk of your retirement income, and you can check your balance at any time, so figuring out how much you’re expected to have at retirement isn’t all that difficult. If you don’t have much in your account, you won’t have much to live on. As a general rule of thumb, for every $1,000,000 you have in savings, you can expect to generate just under $7,000 a month for 25 years assuming a 7 percent rate of return on the annuity.

If you have half that amount in savings, your income will also be half that amount, assuming the same return. if you take income for a longer period of time (i.e. you’re retired for longer), expect the payments to drop. For example, living for 30 years in retirement, you should expect your payments to be just $6,500 a month.

Interest rates also affect your payments. A 4 percent interest rate produces an income of $4,733 monthly for 30 years and $5,238 a month for 25.

Run Some Simple Calculators

You can hop online to run a simple calculation for your future retirement needs, but don’t get too caught up in the projections you see from these free calculators. You’ll probably have to meet with a company like Blueprint Investment Advisers to get a more specific and detailed idea of how much money you’ll need for retirement. That’s because future income needs are calculated using complex mathematical equations that attempt to predict the future value of your savings, how investment interest will be impacted by inflation, and how various withdrawal schemes will affect your future superannuation balance.

Redo Your Budget

Once you’ve met with a financial adviser, it’s time to redo your budget. Re-prioritize your debts. Cancel your cellphone service plan if it’s getting in the way of your future savings, for example. Consider refinancing your home mortgage if you can get a better rate or lower the monthly payments.

Don’t think that, just because you have a lot of debts, there’s no room for saving money. Raising the excess on you insurance plans, consolidating debts, re-prioritizing debts, and selling old junk are all great ways to kick-start your future retirement savings.

Charles Weeden has always had a love affair with numbers. When not balancing columns and studying investment trends, he enjoys blogging about the basics to smart money management.

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