Creating a Financial Plan – Retirement Planning

 We have now reached the stage in our financial plan to review what retirement may look like at your desired retirement age.

 Keep in mind that you do not want to out live your income/ investment assets. Plan in your projections to at least 100 year of age. If you live to the age of 65 then the likely hood of reaching at least 85 year old has now improved significantly.

 To begin, select what age you wish to retire both for yourself and spouse if married. The early the date the more assets you will need to have  accumulated.

 Choose a dollar amount each month you wish to have in retirement in today’s dollars. To that figure add inflation which to be on the safe side lets choose 3 % and adjust that figure each year based on historic inflation. You can purchase retirement planning software to help with the calculation. You can even go online and do the calculation of free from a variety of websites. Just type into a search engine “retirement calculations” and you should find a host companies offering advice.

 Next look at your currently monthly expenses and modify to suit your lifestyle at retirement. Some expenses will be eliminated such as transportation to work and other work related expenses. Your budget might increase in certain categories such as travel, vacation, health costs, etc. If you wish you could use a rule of thumb as choose say 75 % of your current monthly expenses.

Now we will need to list all our investments which would include savings accounts, investments accounts, employer retirement accounts such as 401k or define benefit account ( these types of plans pay a percentage of your monthly salary, based on salary and years of service), IRA’s and Roth accounts. Add to that appreciation of your real estate holdings. Now with each account project annual additions and annual rate of growth.

 To that add income from other sources such as social security, part-time salary income and income from business interests.

 You should now have reached an income amount at retirement, compute a rate of return at retirement until age of 100, subtract monthly projected expenses and hopefully you will not out live your income. Depending on date you have indicated you wish to retire, actual rate of return over the years till retirement as well as into retirement you may need to adjust the annual additions and amount of investment risk, in order to reach your retirement goals.

 Daniel Iuculano, CFP

Certified Financial Planner