Putting Pencil to Paper or Why You Need a Retirement Calculator
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As you approach the golden age of retirement you really need to start to look at planning to make sure that you will be able to afford the lifestyle that you would like once you're working days are over. A retirement calculator can help plan for retirement by allowing you to enter any goals and other information which will give you a framework on which to build your retirement plans.
Items will need to consider our savings and their current returns, your current tax rate, your expected tax rate during retirement, investments and retirement plans that you currently hold, any pension plans and what your expected Social Security payout will be. You will also need to set a target retirement date and figure from that date what's your life expectancy is. Once you have all this information together it is time to get to work.
Tax Rates and Other Things You Need to Consider.
Once you start drawing income from tax-deferred accounts, pensions, and Social Security your tax environment will be somewhat different than when you are working. You will need to find out what your cost basis on your investments that you'll be cashing in are. Since you may not be earning income anymore the tax code will be somewhat different than you are used to from years past.
Another consideration is inflation. Social Security has a cost-of-living adjustment every year, however most pensions do not. It may be wise to look into taking a lump sum for your pension as opposed to taking a monthly annuity payment from your pension. Taking a lump sum is becoming a bit more recommended path due to the fact that many pensions are underfunded and could become insolvent and you could lose a significant portion of your monthly payments if you have a high pension payout.
Trying to calculate your retirement age has also become more confusing. As of 2006 the Social Security administration has moved the retirement age from 65 to 67 for anyone born after 1960. With the impending crisis in Social Security you can expect this age to bump up even more to possibly 70 years old.
You may also want to factor in benefit cuts because of the number of baby boomers will outstrip the ability of workers to provide enough payroll tax to cover all of the social security recipients. Expect this to happen within the next 10 to 15 years as the Social Security system will begin to run a deficit.
Other things you need to look at when calculating a retirement plan is knowing whether you're contributions and tax-sheltered or were subject to tax when you contributed to the plan. Roth IRAs will not be subject to tax but any gains in a regular IRA plus gains in a 401(k) and your pension will be subject to taxation when you withdraw from your accounts.
As much as we all hate it retirement planning is something that we all need to do. The earlier you can do it the better off you will be when you are ready to retire.
More on Retirement for Baby Boomers
Baby Boomers and Social Security
Baby Boomer Retirements and the Insolvency of the United States Government.