Retirement Planning Considerations

Answer 1

To be financially responsible you must consider how you are going to support yourself during retirement. Since you won’t be working and will likely have large medical expenses in the future, properly planning for retirement is extremely important. When planning for retirement, many different considerations need to be made.

The first consideration to be made is how much money you will need to retire. To figure this out, most financial advisors tell their clients to expect that they will need between 80% and 85% of their pre-retirement income to retire comfortably. This means, the average person who makes $100,000 per year will need $85,000 per year (adjusted for inflation) during retirement.

Now that you know how much you need per year, you can better understand how much you need to have saved. Retirement planning experts suggest that you have 20 to 25 years worth of spending money saved at retirement. Assuming the person from above has no other means of income; they will need between $1.7 million and $2.125 million saved before they can retire. If the person from above receives social security or a pension, then they amount they need to save will be far less. For example, if they expect to earn $25,000 per year in retirement from a guaranteed source of income, they will only need to earn $60,000 per year from their personal investments. This reduces their required savings to $1.2 million to $1.5 million.

While this number can seem staggering, you must keep in mind that you have your whole career to save for this amount. However, the earlier you start retirement planning, the better off you will be. To reach their retirement goals, most people should plan on investing between 10% and 15% of their gross income into a retirement account as soon as they start working. Assuming an individual earns a market average return of 7% and 8% per year for 35 to 40 years, they should have plenty of money saved for retirement.

Answer 2

When planning for retirement, consider factors such as your desired lifestyle, retirement age, healthcare costs, inflation, social security benefits, and investment strategies. It's important to create a budget, save consistently, diversify your investments, and regularly review and adjust your plan as needed to ensure a comfortable retirement. Consulting a financial advisor can also help you develop a solid retirement plan tailored to your individual needs.