Planning for the retirement of your dreams will leave you with many questions. Whether you starting early or are about to retire, get answers here.
Together with your spouse or other family members, decide – realistically – what you want to achieve financially. This will vary from family to family. Goals might include: early retirement, travel, a vacation home, securing your family’s financial comfort on the death of a bread-winner, planning for the care of elderly relatives or building a family business.
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The following rules of thumb may work for some people. But they do not make financial sense for everyone. What’s important is to be able to know whether a rule suits your situation. Here are some of those rules, and some considerations that should not be overlooked.
This rule of thumb has been used to answer the question: How much life insurance should I have? The ideal amount of life insurance is the amount that will, when invested, generate enough income to allow your survivors to maintain the level of income they are used to. "Five times your salary" will accomplish this objective in some cases, but there is no substitute for making the calculations necessary to find out how much life insurance you in particular need to buy. The amount you need will depend on how many people there are in your family, whether there are other sources of income besides your salary, how old your children are, and other factors.
You may need to save much more than ten percent of your gross income to have a comfortable retirement. The amount you need to save for retirement depends on how large your existing nest egg is and how old you are. Those who started saving late in life—in their 40s—need to save at least 15 or 20% per year.
This makes sense for most people, but if you’ve accumulated a large amount of money in a retirement plan—close to a million dollars—you may reach the point where the negatives of contributing to your retirement plan savings outweigh the positives.
Although people may need 80% of your salary during the first few years of retirement, later on they are often able to live comfortably on less. The amount of income you need depends on whether you have paid off your mortgage, whether you will have other sources of retirement income, and on other factors.
his is one of those "cookie cutter" rules that only pans out for certain investors. For others, it results in a portfolio that is much too conservative. The best method of allocating your investments among various types of investments depends on your investment goals and needs, and your willingness to risk your capital. In this case, rules of thumb do not serve the investor at all.
Depending on your family’s situation, three months’ worth of expenses might be enough of an emergency fund; or six months’ worth might be totally inadequate. The amount you should keep on hand depends on how easy it would be for you to take out a short term loan, and how much money you have in savings and investments, among other things.
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With retirement on the horizon for hordes of baby boomers, you can bet there will be the political clout to keep Social Security going. However, the Social Security trust fund will be unable to pay benefit increases currently scheduled (which increase annually as the taxable wage base rises) without some kind of reform. A number of proposals have been offered to resolve the problem.
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Request a Personal Earnings and Benefit Estimate Statement from the Social Security Administration. The PEBES contains your entire salary history, including the Social Security and Medicare taxes you have paid. It tells you what benefits you can expect, depending on when you retire. You can collect benefits as early as age 62, but benefits will be higher if you wait until your full retirement age, which ranges from 65, for those born before 1938, to 67, for people born after 1959. You get an even bigger check if you wait until 70 to retire. The statement also covers disability and survivor benefits for your family.
Check Social Security Online or call 1-800-772-1213 for information on applying for the statement. You should ask for a PEBES every three years to make sure that the government has accurate information. By law, the Social Security Administration is under no obligation to correct mistakes after a little more than three years.
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