Retirement Planning - Ways In Which You Can Overcome An Impending Retirement Shortfall
Retirement calculations are useful for quantifying your goals and also act as a monitoring tool. The calculation process should employ certain variables to provide a context-based result. In many instances, the calculators reveal that individuals have a significant retirement shortfall. Even those with savings in place could find themselves in a position of woe. That alone is no reason to panic and worry. You should just manipulate the controllable variables to determine how you can overcome an apparently insurmountable shortfall.
Retirement age: Timing is a very significant part of planning for your golden years. If you are faced with a large shortfall, you may have to rethink early retirement or engage in income-producing activity later on. Instead of using a relatively early age like 55 or 61, you may need to push back the special date to 60 or 65. If the calculator alarms you, you can always adjust your thinking about when you should retire and what you should be doing during retirement.
Standard of living: The benchmark in planning is to have at least 70% to 80% of your last income as your retirement income stream. In crude terms, to maintain the same lifestyle once might use a figure closer to 100%. This would be in addition to accumulated savings. If your calculation tells you that you need to save twice your current income to retire at the level you chose initially, you can always settle for a simpler lifestyle. If you are having trouble meeting a 50% income benchmark, then you are in crisis.
Rate of return: In any calculation, a rate of return or interest rate for your investment vehicle or vehicles is used to determine how long it would take for you to reach your target. Once your shortfall is established, the rate would be critical in how fast you reach your goal. If you have an intimidating shortfall, you may have to obtain higher rates of return. A 25 yr old, planning to retire at 65 may reach the target with an accumulation rate of just 5%. Ceteris paribus, a 50 yr old may need an accumulation rate of 20% to reach a similar target at the age of 65. Generally, an accumulation rate of 20% would involve higher-risk financial strategies. That is why there are more options when one begins planning early.
The aforementioned variables used in retirement calculations are the three main variables that you would have adequate control over in planning. Even if you have annuities and other savings in place, you should always try to assess whether you have a shortfall. Some retirement calculation processes may be more representative than others. The main financial issue to address is how much of a cut in your income you would be willing to risk. There are several non-financial retirement issues that can also be addressed to improve the quality of your golden years. In any event, you should not have to sacrifice your retirement ambitions and dreams because of a paucity of options.
Darrell Victor is a financial services sales professional who specialises in retirement planning and group benefits.
Tags: retirement, retirement planning, savings
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