Retirement Plan Analysis Let’s You Know If You Can Afford To Retire

« « Financial Protection and Finances | A Few Facts To Know About Debt Management » »

Subscribe To Our Feed

Many people, after having invested much of their money into a safe self employed retirement plans, are ready to begin their retire with no money problems. But how many of them have actually taken the time to take a pen and calculator and begin to compute exactly how much of their monthly expenses that their 401k will actually cover? Many haven’t, and many are shocked when they find out how much of a shortfall they have.

The majority of workers have never taken the time to come up with a long term money strategy for retirement. Unfortunately, for most people, doing so never seems to rise to that degree of importance. Yes they will save a bit here and there and a few may even have a organized savings plan where a certain sum of money is removed weekly or monthly from their paycheck and automatically placed in a fund. But relatively few people go through the tedious process of writing down such elementary and relevant facts such as what age they are planning on retiring, the amount of income they’ll need when they retire, and how much cash their fund will realistically provide for them when at retirement.

And that's something you don't want to do. It's also why when the big day finally comes, many new retirees will belatedly discover that their 401K and Social Security payments will not even come close to covering their monthly dollar outlays. So, unfortunately, at the age of 65 or whatever age they retired they discover that they have to go back to work - sometimes part time but sometimes full time - in order to make ends meet.

So, why does this scenario happen so often? And is it avoidable? To put it bluntly - it happens because they failed to make themselves a retirement plan. And yes, this situation is avoidable - if you don’t wait too late to start. So let’s start now.

Here’s a sensible and simple method to try in your effort to create a retirement plan. Ask yourself these questions. How much money do you presently bring in over a month? Many experts believe that you’ll need at least 60 to 80% of your pre-retirement gross earnings to allow you to remain at the same standard of living that you currently enjoy. Being conservative, let’s assume that you’ll need 80% to be comfortable. So, if you make $4,000 a month, your retirement fund plus Social Security payments would have to provide you with at least $3,200 a month.

Then answer the question - what percent of my current living expenses, adjusted for inflation, will be covered by my current 401k fund, in addition to social security? Is it at least 80%? It may take a bit of time to calculate, but this is critical information. If you need help, you can find calculators across the Internet that can assist you.

If you find out that your retirement fund as currently established won’t provide you with at least 80% of your pre-retirement gross earnings, then unfortunately you have one of two hard decisions to make. Either you make a willing decision to lessen your standard of living at retirement. Or, you make a conscious decision to growth the amount of money that will be in your fund when you retire. You can achieve this by either taking an extra job and placing the extra money in your retirement account or by choosing more lucrative investments. Whatever decision you choose, at least you won’t be going into your retirement years financially blind.

Now admittedly, this quick and dirty retirement plan analysis does not take into account many factors that a thorough analysis would. For example, we’ve left out factors such as whether your house has been paid off at retirement, whether you’ll still be supporting your children at retirement, and whether you have other substantial debt loads. And it’s more than worthwhile for you to map out a thorough retirement analysis plan as soon as possible. But even a quick and dirty plan such as this is more than most people do and is better than no plan at all which, unfortunately, is what most people have.

Get Social, Bookmark Us!!: These icons link to social bookmarking sites where readers can share and discover new web pages.