Retirement Calculator And Planning Your Retirement Money

We all hope to retire in comfort one day but planning for that time is a mixture of guesswork and commonsense. There are some basic principals we can apply to the calculation but you only have to look back twenty or thirty years to see how much and how fast things can change.

The value of a dollar, pound or Yen of twenty years ago is very different to the value it has today and there is simply no way of knowing what it will buy twenty, thirty or more years into the future.

So lets consider what your needs might be and how much you will need to have put by to allow you to enjoy a comfortable retirement without financial worry. We need to try to come up with some numbers that will guide us as to how much money we need in our retirement fund to provide us with a comfortable life for as long as we live and that is quite a challenge.

If you have not previously prepared a financial budget recently then you should do that now. You need to have a pretty good idea how much money you have coming in to your household right now and how much goes out as well as what it is being spent on. You need to know what your life costs you every month and year now so you can have any hope of calculating how much money you need for retirement.

Examine your spending patterns now and consider what will still need to be spent when you retire. For example, if you are no longer working then you will not have travel to work expenses and you will be able to eat lunch at home instead of buying lunch out.

Will you still need your car when you are retired. If you are part of a couple and have two or more cars you may find you need only one and if you live in a place where a car is not needed then you reduce your costs by not having to own, run and maintain a car.

Will the mortgage be paid off? If you can plan to have your mortgage paid off before you retire this can make a huge difference to your outgoings and monthly bills. Paying more off now so you have less owing when you retire could make reduce your need to use your retirement fund to make mortgage payments when you need to be keeping that money to give you a return on your investments to pay your essential bills.

Since we have no idea what inflation will do to money in the years ahead we can only make some estimates based on costs today. Most costs go up in line with everything else so by working out today's costs we can make some estimates for the future by adding something for inflation.

If you plan to live for many years, and I hope you do, you will need to have money coming in every year. To have a regular income like that we need to only spend the interest on our retirement savings fund. Ideally we would want to keep topping up the fund to match inflation and the only way we have of achieving that is to have a fund that produces more in interest every year than we need. The sums start to get quite complicated but a general rule is, you need as much money in your retirement savings fund as possible.

So, to figure out how much the fund needs to be to produce the interest as income we can start by calculating how much would you need to live comfortably now. If you say it is $25000 per year then we need to work out how much that would be as interest on a retirement fund and if it is $50,000 we need to work that one out too.

You can pick a figure out of the air as to what sort of interest rates there will be in the future and what investments might produce as income. To give us something to work with we could say 5% per year but that could be way over the top or way too low. We simply don't know but it does give us a guide.

To make 25000 per year at 5% interest requires $500,000 and $50,000 each year in interest will require $1,000,000 in your retirement savings pot. These are big numbers but remember that inflation means the money will be worth less in the future so what sounds a comfortable annual income now will be a lot less in twenty or thirty years time and we have no idea how interest rates will go in the future so these figures are entirely speculative.

The big lesson from looking at these numbers is that you need to save a lot of money and you should do what you can to increase your pension pot now, not leave it until the last few years of your working life.

Reduce your spending now and that will free up more money to add to your retirement savings. Pay off your credit cards and loans and stop wasting money on interest payments. Use the money you would have paid out in interest to the credit card companies to top up your pension pot.

There seems to be a basic rule when it comes to money. The more you have the more you spend and the more you need. Reduce that chain of spending and use the money to top up your retirement fund. As we have seen from the numbers above, you need a lot of money in that retirement fund if you are to be able to enjoy your retirement without worrying about money.

We have established you need a very large pot of money for your retirement savings and when you plan your retirement you need to decide where to invest your savings. Now I am no investment expert. Consider me a babbling idiot when it comes to investment and you won't be too far wrong. If you need investment advice go to a qualified professional but a few of my thoughts and ideas on the subject follow.

You can have no idea what is going to be either popular of successful in twenty or thirty years time. Many of the companies that are successful now will very likely still be so in years to come but we don't know which ones.

If you invested heavily in AOL ten years ago you would have done very well for a year or two but your investment might be worth significantly less now. Many people had money invested in Enron and did well out of it but they may wish they hadn't now. These may be special cases but there are many companies and products that come and go.

Things go up in value and they go down. You may feel some risk is justified in your investments when you are young but the nearer you get to retirement the more risk averse you are likely to become. It would be sensible to plan on reducing all your costs for when you retire and owning your home with no mortgage payments to make is probably a good move and spreading your investments in different areas should help shelter your overall investments from a sudden downturn in one area or another. Banking shares were a good safe bet until a couple of years ago. Who would have expected that?

Be prepared for things to change and change is less likely to damage your retirement savings overall. Nothing is certain in this world so spreading the risk seems to make good sense to me.