Knowing how much money you will need in the long run for your retirement is a very serious and daunting thought. How much money do you need for your retirement? How will you know whether your current savings will be enough to last you to the end of your life? This is not a casual thought. It is a very serious one and one which requires proper assessment and planning.
It is a known fact that most Americans have not planned well for their retirement. The average American will not have enough money for their retirement needs. In Europe, the retirement age is getting extended further and further as we move along in time. And even then, a pensioner is only looking at 75% max of his present earning capacity in retirement benefits.
There is no question that if you run out of money at the age when you cannot generate any more income is a tragedy. It is a tragedy not just for yourself but for your entire family. Therefore there are some very important factors that ought to be considered in order to determine how much money you will need to put away now. This is the money that you will use and need in future. It is your nest egg for the future in order to have the financial freedom you deserve when you retire.
The question of how much money do you need for your retirement is directly related to how much you can save for your retirement. During our productive years, we are in a position to earn and save.
The life expectancy today is around 80. Therefore if you are around 50 years today, you are looking at another 10 years of productivity and earning. However, you are also looking at twenty years of eating from your savings once you retire. Given that at least half the population will cross over the 80-year mark, it is certainly an overwhelming thought that you need to provide for yourself for about twenty years.
To add insult to injury once we go over the sixty odd year threshold our health becomes a matter of priority. We will need to consider additional expenses in terms of medical bills. This will be yet another matter to take into consideration when budgeting for retirement.
So How Are we going to Plan? How Much Money do you need for your Retirement?
In the present world, we have to think primarily of inflation. Ever since 1920, the rate of inflation has been a consistent 3% in the western world. As such, if you wish to equate this a dollar in 1920 is worth $12.69 today.
We all understand inflation. Just going to a shopping mall or supermarket is a struggle. We never seem to fill our shopping basket with anything less than a $100 hefty bill. And this is just for our daily nutrition.
And how about fuel for our vehicles? Granted that the last year saw a slight drop in gasoline. However, the drop is hardly noteworthy when compared to the price hike of fuel over the past ten years.
These are just a few mentions that we are all familiar with. Nothing outstanding. Just facts of life. Inflation has been biting our behind for a long time. And it will keep chasing our butt. Therefore, inflation is one of the major factors that we need to take into consideration.
Planning to Withdraw from Your Pension Fund?
It is natural that at some point we will want to start withdrawing from our pension fund. Taking money out of our fund will obviously have an impact on how much money we will have left. If you are planning on how much money you will need for your retirement, you must plan your annual withdrawals with care.
If you are hoping that you will access your pension fund annually until your last days, then you have to be realistic on many levels. You will need to calculate the number of years you will live, the inflation rate and also your realistic requirements.
Making the Right Investment Choices for Your Pension Fund
Whether you are saving in a government pension fund or preparing your own investment fund, the manner in which you invest your money today for your future fund remains the most important imminent decision. If you are factoring an annual return to hedge against inflation and for the growth of your portfolio, then you need to balance a good portfolio.
Are you considering an investment in stocks and shares? Should you consider a full or partial Gold IRA?
Notwithstanding that stocks should net about 10% per annum, the fluctuations experienced every year could render the value of your investment to be higher or lower. You will need to consider adding bonds to your portfolio. Bonds will have less volatility but they also yield less income.
If you are planning to go for a Gold IRA you must consider reading our guide to the best Gold IRA companies.
You may even consider investing in the new world of digital currencies. With a wider mainstream recognition of Bitcoin and crypto currencies, it may be worth considering investing part of your portfolio in this “new gold”.
You may be interested in reading our latest article advocating the advantages and disadvantages of investment in Bitcoin and crypto currencies as part of hedging against inflation for your future.
One thing is clear. If you are considering the question of how much money you need for your retirement, then having a balanced mix of investments and financial instruments is quintessential.
When Considering How Much Money Do You Need for Your Retirement – Are you also planning a legacy?
Part of our future planning is also to take care of your surviving spouses, children, and other inheritors. If you are looking at leaving a legacy beyond your lifetime then you need to make some other provisions.
#1 Are you planning to leave a specific amount to any inheritors?
If you are planning to leave a lump sum, then you know that through your lifetime you may acquire some return on it. However, the sum itself cannot be considered as part of your annual withdrawal. It is not part of your disposable capital.
#2 Are you thinking of leaving a stream of income for your surviving spouse?
In this case, you will need to maintain the value of your assets intact and survive from the income of your portfolio. This is especially so if your spouse is substantially younger. All the factors that we discussed earlier vis-a-vis inflation, the rate of withdrawal and investment type come into play. The difference is that your capital base will need to be bigger in order to support both lifetimes.
#3 You Will need to factor in cost of Home Care, Hospitalisation and Eventually Funeral arrangements
Morbid as it may sound, all the above considerations have to be made as they are hefty expenses and will make a sharp dent in your retirement fund. These are expenditures which are out of the ordinary. If you are planning to make allowances for your survivors you will need to calculate these costs ahead.
How Much Money Do You Need For Your Retirement? The Conclusion
It is very difficult to predict with any certainty a specific amount of money that you will need for your retirement. The different income brackets and lifestyles of individual will vary the actual size of portfolio you need to plan.
However, in all scenarios, there is no question that if you trying to plan your retirement comfortably, then you need to plan and plan ahead and plan what is right for you. It is only by taking this strategy seriously that you can guess with any accuracy how much money do you need for your retirement.
Disclaimer: The article is not be construed as investment advice and it is merely the thoughts of the author. The site contains affiliate links with banners from which the owners of the site may benefit from commissions.