One can never come up with the exact figure. If you’re expecting something like an accurate figure, you’re on the wrong track!
There are pretty enough variables that come into play — inflation, returns from your investments, your average life expectancy (based on all your medical reports at the time of the calculation), and any other unforeseen expenses. All these factors (and of course, a few more) can affect the durability of your savings dramatically.
However, one has to come up with an estimate – there’s no other choice feasibly. The simplest way to go about this is – going in for an estimation about your average expenses and your spending habits too. Once done, weigh the total of your savings and investment returns against the estimated annual expenses.
Why use a savings calculator for your retirement planning?
A retirement savings calculator can be something of little help. Wondering why we mentioned that syllable “little”? Well, any calculator is not, or, cannot be the final word on how far your savings will stretch in the future. More particularly, can a calculator predict your needs and life expectancy?
You can always choose to adjust your expenses, thrust a little more on your savings, and pay heed to some common withdrawal strategies in your retirement. Go for the tips that have been discussed beneath in this article. They’ll help your money last as long.
The world outside might send heaps of issues your way. But you really needn’t worry – a well-calculated fund could possibly cushion you from all the hurdles.
The 4% rule
This is a withdrawal rule. You obviously need to have your average expenses in mind at first. The primary task is to determine the volume of the fund from which withdrawing 4% each year would suffice. Research conducted by William Bengen back in the year 1994 revealed that a withdrawal of 4% from the pool (and it is inflation-adjusted for sure) would let your stock happily last for long – a good number of about 30 years!
To make this rule roll-on successfully, 50% of your investments should be in stocks.
5 Tips to help your money last long
Keep earning money for as long as you can
I know this one’s very basic, but it actually works. Let’s say you’ve planned out a fund that would last for 20 long years. What about the unplanned and unforeseen expenses during that period? Stretching your working years is always a positive idea. It has satisfactory impacts on both your mind and financial resources too.
Don’t seem to drain your savings too early
As discussed in this article earlier already, taking out 3% to 4% from the total fund each year is a good thing to start with. That percentage must suit your needs and lifestyle adequately. That happens when you've done healthy retirement planning for your future.
You can keep the portfolio in the market
This one is as simple as it sounds: if you want your funds to keep up with the amounts of inflation and rising taxes every year, you need to do this. Keeping large amounts of money in a conservative portfolio will hardly generate returns to last you as long as you live (or say 100 years)! Afraid of market risks? If you can go for the right portfolio mix, you can avert the risks. Bond funds help in the diversification of the portfolio safely. They work to absorb much of the market volatility.
Investing in international funds is another noble idea
International investments help in cushioning your funds from the blow of an economic slump in your country. When more than 50% of your total investment pool is in stocks, a good balance of large-cap, mid-cap, and small-cap funds saves your fund from market volatility as well. Investing can be overwhelming for beginners; you can always consult a Financial Advisor Los Angeles for professional guidance.
Restrict yourself when it comes to withdrawals
Take this piece of advice – keeping some cash in hand is absolutely necessary for the senior investors (as compared to the younger ones). Financial planners often advise the senior citizens to keep money (matching up to 5 years' expenses) in either cash or cash equivalents like short-term bonds, treasury bills, etc.
Periods of highs and lows are a part and parcel of every economy. Years of careful and well-planned saving and investing could at times allow you to retire a few years earlier too! Keep a tab on the tax-advantaged investment accounts, check your spending habits, and check the investment risks; it’s not that difficult to secure a peaceful retirement life!
