Retirement - How to Do a Pre-Retirement Calculation

With retirement calculations, the more information you have, the more accurate the estimate would be. Before you begin a calculation, ensure that you provide the following information:

a) Likely retirement age

b) Current income

c) Annual salary increase

d) Current age

e) Current pension plans and future pension benefits

f) Target percentage of pre-retirement income that you desire.

With this information, you need to perform the following steps in sequence:

i) Determine your pre-retirement income

ii) Calculate your desired retirement income amount

iii) Subtract other state benefits or defined benefits

iv) Work out the lump sum needed

v) Assess your current retirement savings and project future values

vi) Deduct your projected savings to estimate the shortfall

vii) Calculate what needs to be done to eliminate the shortfall

i) You do not have to be clairvoyant to evaluate your pre-retirement income. Simply use an arithmetic progression (a to the power of n multiplied by current annual income), where a is the common ratio and n is the number of years to retirement. The common ratio is derived from the salary increase. If your annual salary increase is 4%, the common ratio will be 1.04.

ii) Your desired retirement income would be based on your pre-retirement income. The recommended target percentage would be at least 80%. If you're currently earning $50,000.00 annually and your pre-retirement income is $120,000.00, your nominal target should be $100,000.00.

iii) You may be entitled to pension benefits from Social Security and employer's defined benefits that would provide additional retirement income. The annual amount should be subtracted from your desired annual retirement income. This should yield a shortfall.

iv) The lump sum needed would be the shortfall evaluated in step iii. To determine the lump sum you require to meet your income target, you need to divide your shortfall by an average long-term interest rate. If your shortfall is $100,000.00 and the long term interest rate is 10%, the lump sum needed would be $1,000,000.00

v) You need to identify your current retirement savings plans, investments or annuities and use a financial calculator to project what the values of these funds would be at retirement. You would then tally the projected future values of all your plans.

vi) If your lump sum needed exceeds the future values of your retirement plans, you have a shortfall. If not, then you would be on track.

vii) Once the shortfall is ascertained, use a financial calculator to determine the contributions that you need to make to eliminate the shortfall in a given investment vehicle.

The aforementioned process is the basic retirement calculation. Some retirement applications may be more flexible and allow you to simulate mutual fund performance. However, only a rough estimate is needed. The usefulness of this method is that it allows for a greater degree of transparency in calculations. Some needs estimators are vague and obscure. This calculation method would usually provide a more representative estimate.

Darrell Victor is a financial services sales professional who specialises in retirement planning and insurance advice. To read his latest articles visit http://www.helium.com/user/show_articles/338815

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Exciting New Adventures Ahead With Retirement Account

We all love to go on vacations and we work hard for them. We usually plan months or even a year or so in advance for that special event. We may go to a lot of trouble just to get the best buys around and advance tickets if necessary. A retirement account should be treated much the same way as a special vacation. There is a lot of preparation and planning that must go into the future days ahead. Things such as, where you will be when you retire and what do you plan on doing for the rest of your life should all be a part of the decisions you will need to make when you are younger and in the investing decisions. This article will offer tips on some of the things to plan for, and how to prepare for retirement.

I believe a retirement account should be set up as soon as possible when you are young and begin a working career. As parents, we should begin training our children in these areas as soon as they are old enough to work. I wish my parents had done this for me, life would seem to be a lot easier now. I could have avoided many of the hard times that just a little more planning could have afforded. We can direct our children to find jobs that have a retirement account set up for them. Many jobs will offer an IRA account as a benefit. This individual retirement account can be set up in many ways that will lead to more money for your future.

You can set aside a certain amount of money each month that would go into a retirement account. This money would be set up in such a way that it would begin growing with interest or investments, so that you can double and triple your money invested. Many jobs will place a certain amount of money each month into an account for you, or in some cases, they will match what you place into the retirement account. There are places you can go for advice in setting up a retirement account and they can invest your money for you or show you how to do it.

When preparing a retirement account you will have many things to consider for your future. How much money will this acquire by the time I do retire. Will it be enough, or do I need to have more than one type of retirement account set up. What kind of things would I like to be doing at the age of retirement and how much will those things cost. Where will I be on my debt load at that time, and this really is something to be thinking about. Can you buy a home now that you could have paid for by the time you reach the age of retirement. This would not only be an investment, but your overhead expenses would be less so you could possibly do and spend more in your days ahead. A retirement account could put a little bit of a bite on your younger lifestyle, but in the future days ahead, your retirement account will have been worth the sacrifice.

If you need more helpful information on Retirement try visiting http://retirement-life-today.com, a website that specializes in providing helpful tips, advice, and retirement resources to include Retirement Account.

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