Plan For Retirement, Estimate Needs - Money Tools |
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Plan for your retirement, estimate monthly savings needs to achieve your goals - Simple Joe's Money Tools |
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Plan For Retirement ToolIf you are relying on a company pension plan, 401k or Social Security, you may be surprised. These funds, though substantial, may not afford you the lifestyle you have become accustomed to or wish to live at during your retirement years. Also, with people living longer or being forced to retire earlier, your retirement years may be longer than you anticipate. Not only do you need to plan to accumulate the funds you will need to live on during retirement, you also need to factor in the effects of inflation on your investments.  There are three basic ways of determining what you want or need for retirement. The first way is to simply decide on a lump sum. The second way is to plan to accumulate an amount of money and live on the interest. The third method is to estimate how many years you will need to live on your retirement money (a little morbid because you have to estimate your death) and determine how much you want left over when your retirement runs out (or you die, assuming you die on schedule). Each of these methods has its advantages and disadvantages. The first is extremely simple but almost random and tends to be the most expensive. The second method takes a little more thought, but not much (and a little more money). The third requires you to make several estimations but may be more realistic. The third method also requires a little more explanation. The third method or "Living Allowance" method is based on the idea that you will use up your retirement money either entirely or to an amount that will be left as an inheritance to family or a legacy to an organization. This method also is less expensive than the other two. When you retire you will be earning more interest than the amount that you will be withdrawing. But as you use the retirement funds the amount of interest diminishes until your last withdrawal when you will either have $0 or the amount of inheritance/legacy. Begin by estimating the number of years until you will retire. For example, if you are 30 years old and will retire when you are 65, you have 35 years in which you may build up your retirement savings. Next estimate the average annual inflation rate. From 1967 to 1996 inflation averaged 5.33%. But this figure includes the exorbitant inflation of the 70's and moderate inflation of the mid 90's. Better regulation of economic factors have brought more stability to financial markets and economies in recent years. Therefore, most financial planners agree that 4% is a conservative amount. Inflation will have a dramatic effect on your retirement savings if you are planning to retire in 20 or more years. For example if inflation is 4% per year, what you can buy for a $100 dollars today will cost you $222 in 20 years, $331 in 30 years and $495 in 40 years. That $1.5 million may sound good today but it will be worth only a fraction of that amount years from now. Also you will be spending more for normal living expenses than you do now. If you want to live on the equivalent of $4000 a month, in 30 years you will be spending $13,254 each month. You may already have some retirement plans or programs setup. If you have an IRA or 401k or are just stuffing your mattress, use either the "Project My Investments" or "Calculate An Investment" tool to determine the value of your programs when you retire. The information needed next will depend on the method of calculation you select for your retirement. If you select the "Lump Sum" calculation you will only need to enter in the amount you wish to accumulate. For the "Live on the Interest" option you will need to determine the monthly income level you wish to receive and estimate the rate of return (APR) that your retirement money will be earning. The third method or "Living Allowance" method, requires that you enter the monthly amount you desire to live on, the number of years you will need to depend on your retirement, the rate of return on your retirement money, and any inheritance or legacy amount you wish to leave. Once the required values have been entered the amount you will need to accumulate will be calculated. When estimating your monthly needs, remember that you may have your home paid off before or shortly after you retire, thus eliminating your mortgage payment. Additionally, you may not need to spend as much on business attire or other work related expenses. But also remember that you may have additional medical expenses, higher insurance premiums, and the need for extra funds for hobbies and/or travel. The two big retirement questions most people have are, "How much do I need to invest at x% APR today, monthly, quarterly or yearly to achieve my goal?" and "If I invest $x today, monthly, quarterly, or yearly, what rate of return do I need to achieve my goal?". Enter the APR (annual percentage rate of interest) at which you anticipate your retirement investment will accumulate, and select the frequency that you will invest; Today (a one time investment), Monthly, Quarterly, or Yearly. The amount you will need to invest each period will be calculated. Enter an amount you will invest Today, Monthly, Quarterly, or Yearly and the interest rate you will need each year to reach your goal will be calculated. The five Scenario buttons allow you to create multiple scenarios using different values. Each scenario may be printed for future reference and comparison. Only information for the currently selected calculation method will be printed. When you select the Print Scenarios button the following window appears:  Check the box next to each completed scenario that you want to print then select the View or Print button. More Resources:Motley Fool - Three Roadblocks to Retirement - 11/05/02Next: Estimate My Net Worth 
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| Page Title: | Plan For Retirement, Estimate Needs - Money Tools |
| Keywords: | Simple Joe Money Tools simple financial calculator personal finance pc software retire plan retirement planning savings needs achieve goal monthly amount requried |
| Summary: | Plan for your retirement, estimate monthly savings needs to achieve your goals - Simple Joe's Money Tools |