A Quick and Dirty Retirement Plan Analysis


Ok, now you are so ready to retire, and you can’t wait for that day. But wait a minute, have you analyzed you retirement funds to ensure that it will cover your expenses? This is the part that most people ignore, and a few months into retirement you realize that the funds will not be enough. You are forced to do something you vowed with all you heart that you will never do again, find another J-O-B. The following article by Eric Bayne shows how you can analyze yourself to determine whether you can afford to retire or not.

Retirement Plan Analysis Let’s You Know If You Can Afford To Retire. You have prudently invested your money in a 401k for years, are ready to retire, and are looking forward to a long and peaceful retirement with no money worries. But have you actually taken the time to sit down with pen and calculator in hand to figure out exactly how much of your monthly expenses your 401k fund will cover? If you haven’t, you may be truly shocked when you finally do get around to it.

The majority of workers have never taken the time to come up with a long-term money strategy for retirement. Unfortunately, for most people, doing so never seems to rise to that degree of importance. Yes, they will save a bit here and there and a few may even have an organized savings plan where a certain sum of money is removed weekly or monthly from their paycheck and automatically placed in a fund. But relatively few people go through the tedious process of writing down such elementary and relevant facts such as what age they are planning on retiring, the amount of income they’ll need when they retire, and how much cash their fund will realistically provide for them when at retirement.

And that’s a big mistake. It’s also why when the big day finally comes, many new retirees will belatedly discover that their 401K and Social Security payments will not even come close to covering their monthly dollar outlays. So, unfortunately, at the age of 65 or whatever age they retired they discover that they have to go back to work, sometimes part-time, but sometimes full-time, in order to make ends meet.

So, why does this scenario happen so often? And is it avoidable? To put it bluntly, it happens because they failed to make themselves a retirement plan. And yes, this situation is avoidable, if you don’t wait too late to start. So let’s start now.

Here’s a sensible and simple method to try in your effort to create a retirement plan. Ask yourself these questions. How much money do you presently bring in over a month? Many experts believe that you’ll need at least 60 to 80% of your pre-retirement gross earnings to allow you to remain at the same standard of living that you currently enjoy. Being conservative, let’s assume that you’ll need 80% to be comfortable. So, if you make $4,000 a month, your retirement fund plus Social Security payments would have to provide you with at least $3,200 a month.

Now ask yourself. How much will your current 401k fund plus Social Security provide for you at retirement. Is it at least 80%? This part may take a bit of work on your part, but there are calculators all over the Internet that can help you to answer this question.

If you discover that your retirement fund as currently constituted will not provide you with this 80% of your pre-retirement gross income, you have one of two hard choices to make. You either make a conscious decision to lower your standard of living when you retire. Or, you make a conscious decision to increase the amount of money that will be in your fund when you retire. You can do this by either taking extra jobs and placing the excess money in your retirement account, or by choosing more profitable investments. Whichever decision you choose, at least you won’t be going into your retirement years financially blind.

Admittedly, this quick and easy analysis of your retirement plan does not take into account many factors that an exhaustive analysis would. For example, we’ve left out factors such as whether your home will have been paid off at retirement, whether you’ll still be supporting your children at retirement, and whether you have other significant debt loads. But it is extremely worth it to you to map out a thorough retirement analysis plan as soon as possible. And even a quick and dirty plan such as this is more than most people do, and is better than no plan at all which, sadly, is what most people have.


About kenndungu

Live a few years of you life like most people won't, so that you can spend the rest of your life like most people can't. Anonymous View all posts by kenndungu

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