USEFUL EXTRAS


FINANCIAL PLANNING

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Is it necessary to plan for your future?
Suppose that you want to retire at age 65 and you will need annual income of $10,000 (after adjusting for inflation) from your savings after your Social Security benefits and any other pension. (At most, you should figure on an 8% return from your savings. We assume here that inflation will continue at 3% per year.) The following table shows, under these optimistic assumptions, how much you need to have saved at age 65. The important number that no one knows for sure is the number of years you will need to draw from your savings. This raises a question of how safe you want to be. You certainly need to provide at least for your "life expectancy."
Number of years of receiving $10,000 Dollars needed at age 65
13.4 (life expectancy of a black male) 101,000
15.4 (life expectancy of a white male) 111,000
17.1 (life expectancy of a black female) 119,000
19.0 (life expectancy of a white female) 127,000
20 131,000
25 148,000
30 161,000
Half the people in the given category live longer than the life expectancy.

So, how much do you have to save each year in order to accumulate the "nest egg" you will need for your retirement?
Clearly the earlier that you start saving, the better. That is, if you start young, you do not need to save as much each year. Suppose that you have decided you want to have $131,000 in your investments by age 65. Under the same assumptions as before, the following table tells how much you will need each year in order to accumulate $131,000.
Current age Years until age 65 Annual savings needed ($)
25 40 1033
30 35 1381
35 30 1878
40 25 2614
45 20 3773
50 15 5782
55 10 9919

How can you save as much as is necessary? That is part of the planning you need. Read the the links from this web site for a start.
Of course, if you make different assumptions, the conclusions will be different. The Social Security Administration has a "Retirement Planner" to lead you through a process of financial planning. If you do not find what you are looking for there, there are more sources in links for Retirement Planning.

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