A guide to help you calculate your retirement income

It can be tricky to figure out the amount of money you may need when you retire. This is because there are many variables that come into play when you decide to plan for your retirement. No doubt, planning for retirement and planning for the future is usually in the minds of most people. 

Some of the crucial things you need to consider when planning for your retirement include health care costs, inflation, and potential market downturns. You need to use a reputable retirement savings calculator to determine how much you can save for your retirement. Remember that there are also various factors you have to think about to help you plan for a successful retirement. This article is a guide to help you calculate your retirement income. 

Understanding retirement income

To know whether or not your retirement income will be adequate for you when you retire, you should estimate your retirement expenses. You can find a variety of formulas to help you to estimate retirement expenses, but most of them are rough guesses. One of the rules is that you have to make sure that at least 80 percent of the money you spend goes into retirement.

This percentage is usually based on the assumption that major expenses can go into your retirement, such as retirement plan contributions, commuting costs, and many more. Other expenses can go up like healthcare and vacation travel.

Most people who have retired claim that the expenses in their first couple of years tend to equal to or sometimes exceed the amount of money they used to spend while working. This is because most retirees often have enough time to go on vacations and spend money. 

There are three phases which are common for retirees’ expenses. This includes more spending early on, modest spending for a long time after this, and higher spending when they are near their end of their lives due to long-term care and medical expenses. As you can see, many retirees usually spend a lot of their money in the early and final years after retirement. 

It can be hard to predict future expenses. But when you get close to retirement, it makes sense to have a good idea of the amount of money you may need to help you to sustain your current standard of living. You can use this as a base and subtract all expenses you expect may not be there after you retire and then add in all new expenses. This can give you a ballpark figure that you can work with. 

And, if you expect any large expenses, such as a brand new kitchen and a lot more travel expenses, make sure that you include them. The same thing applies for all major cost-savers. For example, you can decide to reduce your expenses by relocating to a less expensive home. 

Sources of income

One source of income after retirement is the Social Security Retirement. This can apply if you have worked and paid into the Social Security system for about 10 years and earned at least 40 credits. In such a case, you can estimate your Social Security retirement benefits by utilizing the Social Security Retirement Estimator. The estimate tends to get more accurate when you are close to retirement. 

You should note that when you take benefits earlier, you can receive less money each month. You can choose to take your benefits when you are 62 or even 70 years old. But after this, you don’t have any other incentive of waiting because you can get the entire amount regardless of whether you are 70 years old or more.

And, if there is a pension plan that you may receive from your current employer or even the previous one, the administrator for the pension plan may offer you an estimate of the amount of money you can receive when you retire. If you have a spouse, it’s a good idea to consider your income under various situations, such as taking benefits like a joint and survivor annuity. This annuity can continue to offer a specified percentage of the benefits to your spouse when you pass away first.  

Retirement savings can include everything you put in IRAs, 401 (k)s, health savings accounts, and many more accounts you allocated to be for retirement. If you have a 401 (k) or IRA you should begin required minimum distributions when you are 72 years old. You should note that Roth IRAs don’t have required minimum distributions during your lifetime. These required minimum distributions can determine the monthly income you can get from the accounts when you are 72 years old. Still, you can decide to start taking your cash out from a 401 (k) or IRA when you are 591/2 years old without any penalty.  

Therefore, after you add all these up, if the total retirement income is more than your predicted expenses, then you have enough for retirement. But you can still opt to have more. On the other hand, if it appears that the total retirement income may fall short, then you have to make some adjustments or find ways you can lower or increase your income. 

You can decide to work a couple of more years, improve the portion of your pay that is earmarked for retirement, and implement a more aggressive investment strategy. Also, you can reduce unnecessary spending and move to a more affordable home. It’s a good idea to calculate your retirement income so that you can determine what you can expect.

Most people save money to purchase goods and for emergencies. This means that there can be cash when you need it. Also, this money tends to have a lower risk of losing value and can make some small potential gains. 

On the other hand, people invest with long-term goals in their minds. There is a chance that you can get better long-term returns when you invest your money, though there is more risk. You just need to find the right balance between risks and rewards, based on your time horizon and risk tolerance.