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In honor of Financial Literacy Month, we created a microsite that offers 30 simple steps to financial wellness–one for each day of the month. To enrich the experience, we asked some amazing people to guest post during the month on a topic that is related to the day’s step. Their dedication to financial literacy is truly inspiring! Today, Pinyo, the primary writer of Moolanomy personal finance blog, talks about securing your financial future.
If you have been reading through the first 14 days, you should have a good grasp on ways to improve your finances and clean up any past mess. Now, it's time to look to the future and see how you can save for retirement, secure your financial future, and enjoy your golden years.
In case you skipped a few days, it's a good idea to eliminate your non-mortgage debt before you start saving and investing for retirement.
The first step in retirement planning is determining how much you'll need. A general rule of thumb is you'll need 80% of your current income to cover your expenses. You will have some new expenses like higher healthcare costs, more frequent trips with your buddies, money for grandchildren, etc. But you won't have some usual expenses either -- e.g., mortgage payments, commuting costs, saving for retirement, etc. Remember this amount is in today's dollars so you'll have to factor in inflation. For example, 30 years from now you'll need $x to cover $50,000 a year expense in today's money assuming inflation increases at 3% per year. Here's how the calculation is done:
Amount Needed = Income needed today * ((1 + inflation rate)^ Number of years to retirement) Amount Needed = $50,000 * (1.03 ^ 30) Amount Needed = $121,363
Impossible? Not at all. A good financial plan will allow you to meet this need without problem.
Here are a few more relevant articles:
As you can see here, there are a lot of ways to get the same result. And you should notice that the earlier you start, the easier it is to accomplish your retirement savings goal.
There are many more retirement investment options and you should do your research before choosing one, or a combination, that's most suitable for your needs.
Hopefully, this information is helpful enough to get you started with retirement savings, investing, and planning, but not too overwhelming. Please enjoy the rest of the Financial Literacy Month and don't forget to stop by my blog at www.moolanomy.com.
Pinyo is the owner and primary writer of Moolanomy personal finance blog. To get more practical financial information that you can use, please visit his blog at www.moolanomy.com.
A good article but I too would question whether 80% of current income is necessary or realistic. The costs of going to work, commuting etc. can be quite sizeable. I also think that when you're not working you feel less need to spend money on luxuries. Perhaps, 60-70% is a more reasonable figure?
"A general rule of thumb is you'll need 80% of your current income to cover your expenses"Most people here in the UK never get anywhere near that level. In fact it is only those with defined benefit pension schemes which can expect to receive a pension income close to their total current income.
Latest retirement surveys show people have no appetite to save and this rings true in real Financial Planning. Only a select few actually save anything more than what they are either told they have to with their employers or the government and usually these are never enough. The longer we live and the worse annuity rates get means its difficult to offer new pensions with any real confidence. In 25 yrs there will be no retirement market.
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