Retirement Planning: As Simple as a Dollar a Day!

Approaching retirement planning can be an overwhelming task, as there are many factors to calculate and consider. According to the 2006 Citistreet Retirement Confidence Survey, most Americans have very minimal retirement savings and have underestimated their financial needs as senior citizens. However, by taking time to create your retirement plan and taking easy precautions, retirement planning can be easy as saving a dollar a day!Creating the right retirement plan for you

To determine how and the amount of money you should save for your retirement, there are several important questions to ask during the retirement planning process:

•  What will my financial needs be during my retirement in order to lead a comfortable lifestyle?

•  What are my goals when I retire? Do I want to live in my hometown or perhaps in a more luxurious locale?

•  When should I begin my retirement planning?

•  How much income can Social Security provide me?

•  What type of retirement plan can help me effectively save for my retirement?

•  What other financial considerations will I have in my retirement?

Getting the calculations right

On average, retirement plan experts recommend that you will need 65% – 80% of your current income to sustain your lifestyle during retirement. With that said, there are many other financial factors in retirement planning to ensure that your retired days are filled with relaxation, instead of financial stress. Below are the steps to calculating exactly how much you will need upon retirement:
1. How much annual income will you need in retirement?
2. When will you retire?
3. What is the average inflation rate during your lifespan?
4. How much do you expect to generate from your investment returns annually, both prior to and after your retirement?
5. How much is the current market value for your investment portfolio, including your savings account, 401Ks, and IRAs?
6. Will your company provide you with a pension upon retirement? If so, how much will that pension be annually?
7. How much do you expect to receive annually from Social Security?

By calculating the difference between the income you need and the revenues you will receive in retirement, you can accurately gauge how much you need to save and invest now in your retirement plan to ensure a comfortable retirement.

The power of compound interest

The younger you are, and the more time you have to plan for retirement, the better prepared you will be when you retire. By utilizing the power of compound interest, you can ensure that you and your family will have sufficient savings to keep your lifestyle prosperous when you retire. By saving as little as one dollar per day into a simple savings account, in 30 years, through the power of compound interest, you will have accumulated approximately $27,000.

Now, by saving 10 dollars a day, you have exponentially increased the power of compound interest. Compounded annually at 5%, by the time you retire in 30 years, you will have accrued approximately $270,400 from only putting $300 per month away in your savings account! Even without fancy investment tools, you can save a significant amount of money when you begin early with your retirement planning.

However, if you decide to wait to begin saving for your retirement plan, you will give up a significant amount when you retire. For example, if you invest $1000 annually into an investment that provides a 10% profit, at the end of 25 years, you will have accrued approximately $108,000. However, instead of saving now and waiting five years, that $108,00 shrivels to only $63,000. By waiting five years, and thus not investing $5000, you actually lose out on over $45,000 for your retirement plan.

By starting early and having the foresight to implement a retirement plan, you simply need to save a minimal amount annual to ensure that your retirement is comfortable, luxurious, and financially stress-free!

This entry was posted on Friday, October 5th, 2007 at 12:56 pm and is filed under Retirement Plan. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.