3 Questions You Should Answer Before You Retire

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Having a good retirement plan is a necessity, especially if you plan on retirement travel.

Do you know how much money you will need at retirement? Do you know if you will even have that much money? The best method to know for sure is to begin the process of putting together your retirement spreadsheet today. Before you start your spreadsheet, however, you are going to need to answer the following three critical questions:

What is your annual desired retirement income in today’s dollars. In other words, if you were to retire today, how much money a year would you need to keep you living in the fashion to which you are accustomed. Most retirement spreadsheets and calculators will have built into them projected estimates for inflation and will be able to use this figure to calculate roughly the amount of annual income you will need at retirement.

What number of years remain until you retire? This is crucial as it’s the number of years that you have left in which to contribute funds to your financial portfolio. The computer worksheet will take the value of your present investment portfolio and add to it any anticipated donations up to the retirement date. The computation will reveal approximately how much you can expect to have at retirement. If this amount is less than what you require, you will either have to add more money to your portfolio, change your investment strategy, or lower you expected standards of living at retirement.

How many years do you expect your retirement fund to last? This can be a highly sensitive question as it gets into life expectancy and mortality issues. When you start to collect Social Security, your earnings from it will be comparatively constant. But if you’re like most people, Social Security will cover less than half of your desired income. And in a lot of cases, it’ll cover considerably less. This means that the rest of your investments have to supply your remaining income. In the best of circumstances, you will be able to live off of a combination of the interest and dividends from your investments and not have to touch the principal. On the other hand, if you are pressured to begin taking money from the principal, your annual income from it will continue to decrease until it’s used up. Knowing how many years your retirement funds will be necessary will help you make the decision as to whether you should start to draw the principal down or accept a lowered standard of living.

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