Retirement Savings Calculator Items for Consideration

Using a retirement savings calculator to predict the time value of money is easy.  Choosing how you will save for retirement and how much to save are the tricky parts.  Once you have an IRA or employer sponsored account set up, you pretty much don’t have to think about it again however determining how much you will contribute to these accounts in order to have enough when you plan to retire requires detailed planning.

Many people use the help of a retirement saving calculator or use some other mathematics formula to predict how much money they may need.  There are some myths about the use of these financial tools such as that they may be flawed or unrealistic. In fact, any time we try to predict the future and no matter what tool we use to do it, there is always the chance that the result will be inaccurate.

The same is true when planning for retirement.  A calculation and its answer are only as good as the original numbers put into it and there are many factors that will influence how much money a person will need to save.

How much will things cost in the future?

Cost of living is one of the most obvious factors that influence a person’s retirement.  With accurate numbers about what that cost will be, a retirement savings calculator can be used to predict how much your nest egg may be worth in the future.  Up until a person stops working, they will have been putting money away that will still be as valuable in several months as it was the day they retired.  Cost of living such as the price of food, gas, housing and other essentials rises from year to year.

If a person has stopped working, they are no longer bringing in money that is matching a cost of living increase but instead using saved money that is not as valuable as it once was.  This is referred to as the time value of money and an easy way around it is to have your money in investment accounts that earn money at a particular rate.  A six percent rate of return is typically thought of as conservative while 10% or higher is aggressive.

What type of lifestyle do you want?

The lifestyle a person wants to lead in retirement is also a big factor that often parallels cost of living.  An individual making 100,000 dollars per year that wants to maintain their current standard of living in retirement will have to have investments or other income such as social security matching that annual income.  Many individuals live on less than they did while they were working, due to a down economy, high prices, or inflation can negatively influence a person’s retirement savings.

Briefly, the more things cost the less a person will be able to buy during their retirement years.  Any retirement plan must be designed around how a person plans to live whether lavishly or conservatively.  As with other future value of money issues, a retirement savings calculator can also be used to predict how much your planned annual expenditures will affect your current savings and their growth.

These are only a couple of the factors that will decide how a person should plan for retirement.  Using a retirement savings calculator is a wonderful way to project how much a person will need however it should be used as a tool.

Punching what you may think you need in a calculator would give you an accurate answer in terms of numbers but not having realistic expectations about the state of the economy in the future, how you want to live or even the type of investment plan you choose are the things that can mislead you.  Accurate rates of return, future costs of living, inflation and other figures should be obtained before using a retirement savings calculator.  If figures that you use are misleading or flat out wrong, your predictions will not be accurate.

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