Figure Out if You Can Retire by Walter Updegrade off CNN.com advised a couple who planned to retire at 65 to think first about whether they had enough funds and capability to generate income needed for 25 years of retirement. He suggested that it was more important to determine how much yearly income is needed and from where it is coming, than setting an age for retirement. The author offered a self assessment process for estimating how much is needed and also suggested possibly consulting with a financial planner.
We used both approaches, a self assessment and using a financial planner. With the self assessment, we estimated that we needed to save about 16 times of my gross salary.
Our financial advisor provided a balanced analysis, i.e. both the best cases and the worst cases. We decided we needed income equal to 100% of our pre-retirement after tax income. With that as a base, our financial planner ran different scenarios, e.g. paying off the mortgage, various life expectancies, saving for education, social security, etc. Based on his analyses, we increased our savings target to 20 times gross salary.
Knowing our target savings amount was helpful for our retirement planning. Although we had originally planned to retire in our mid-fifties, we achieved our target savings earlier than expected in 2007. Thus, we were able to retire earlier than originally planned.
For more on Reaping the Rewards, check back every Friday for a new segment.
This is not financial or retirement advice. Please consult a professional advisor.
Copyright © 2008 Achievement Catalyst, LLC
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