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Simplified Retirement Planning

 

Simplified Retirement Planning

 

            “A journey of a thousand miles begins with a single step”.  Retirement planning can seem like a journey of a thousand miles.  A confusing, overwhelming, difficult to understand journey.  Your retirement income plan needs to contain the following information:

            A recent suggestion for retirement planning is to plan for only one year at a time but to plan for all the years of your life expectancy. Start your retirement income plan with one column for each calendar year, with your respective age and spouse’s age recorded under each calendar year through your hoped for life expectancy.          

            Next add rows for each source of income such as:

  • Your Social Security, showing the amount starting in the year/age you choose and continuing through life expectancy.
  • Your spouse’s Social Security, showing the amount starting in the year/age you choose and continuing through life expectancy.
  • Your pension(s), showing the amount starting in the year/age you plan to take it. A separate row is used for each source of pension income.
  • Your spouse’s pension(s), showing the amount starting in the year/age you plan to take it. Again, a separate row is used for each source of pension income
  • Annuity Income: Input this only if you have an annuity that will pay you a guaranteed minimum amount starting at a specific age or date, with the payment continuing for life, joint life, or for a set period of time.
  • Earnings: If you plan on working part time, input earnings for the years you plan to work.
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          Now add a row for your desired gross annual retirement income. Gross means including taxes, so, for example, if you wanted to spend $40,000 a year, your desired gross income should be about $50,000 a year, leaving $10,000 available to pay income taxes. Tax rates of course will vary depending on your total income and deductions.

                Next, your retirement income plan should calculate the gap or surplus each year from your fixed sources of income compared to your desired gross income.  Total each year’s gap or surplus for each calendar year from expected retirement to life expectancy. If this is a negative number, this is what you would need to come up with to have your desired retirement lifestyle.  If the total is a surplus than you have enough fixed sources of income to meet your desired retirement lifestyle.

                This simplistic retirement income plan does not account for inflation or investment returns, but it gives you a great year-by-year outline of where your retirement income will come from.

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