Learn to do Retirement Calculation

Retirement calculation is an essential part of retirement planning. Each one of us has his or her own dreams for retirement. There are those who want to live a grand lifestyle and travel the world while there are those who would opt for a simpler life. Given that we have different wants for our retirement, we would definitely need different amounts of retirement income to make our plans into reality. Hence, your calculation will most likely be different from other people. Yet no matter how different the results are, the way to calculate what you will need is pretty much the same for everyone.

For those of us who are not well-versed in finance terminology, retirement calculation may seem difficult. However, understanding it is not that difficult. The basics are a simple as assigning, subtracting and multiplying numbers.

Step 1 – Track Your Spending

When planning for your retirement, the things you need to know are how much you will be spending during your retirement. That will help you determine how much you will need to save so that you will accumulate enough to cover your retirement by the time you retire. Taxes and inflation rates are variables that you have to consider.

You should look up the possible expenses you will be incurring when you retire. It will be comprised of things such as how much you will be allotting for your basic needs and utilities, the mortgage you will be paying if your home is not yet completely paid off or the rent you will have to pay.

The cost will vary according to the place you are planning to retire to, so you have to decide where you want to retire as well. You won’t be staying home all throughout your retirement. It is expected that that you will have expenses for your entertainment and recreational activities. You will also have to add your estimated medical expenses as these are to be expected as you get older. Estimate how much you will be spending on all of that during the whole year.

This is the most important step that most people won’t, or don’t do! Start looking really closely at your monthly expenses as this will be your best way to predict what you will be spending in the future. Also take into account things like paying down your mortgage because that is a big expense that once paid off you won’t need to worry about generating that extra income each month once you have retired.

Step 2 – Calculate How Much Will You Need for Retirement

Now that you know how much you will be spending each year during you retirement, the next part of your retirement calculation is to determine how much you need to save in order to pay off your retirement expenses. If you are currently contributing to 401(k) plans and other pension plans, you should look up how much you will be receiving from those each year when you retire. The same goes for your social security.

Those are actually fixed receivables that you will be expecting each year. You have to subtract those from your projected retirement expenses and the difference is the amount you have to save each year in order to reach you target retirement calculation amount.

Divide the amount you need to save into 12 months so that you will arrive at a figure you need to save each month when you receive your pay check. Will it be eating up too much of your salary? If so, then you have to come up with alternatives to generate additional income. Moreover, you should add in extra saving because taxes and inflation may rise by the time you retire.

Retirement calculation is not so difficult to do. Even if you have no background in finance, you can actually find out how much you will need to retire.

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