Project a Better Retirement with
Only 4 or 5 Years to Go
by
Shane Flait ©2010
Knowing what your retirement income
and expense will be is essential to
planning your retirement life. You
can estimate your income and
expenses under your present
circumstances. If you’re not happy
with the results, take some quick
steps to fashion a better
retirement. Here’s the process:
Project
Your Retirement Income:
Your base retirement income is made
up of three parts:
1.
your pension income,
2.
your social security income,
and
3.
income your savings will
generate.
Check with your company for your
pension income estimate. Then
estimate your social security income
from the Social Security website.
Project your total savings 5 years
hence. Use about 5% of that
projected savings as its
contribution to your yearly income.
Now total these three incomes for
your annual retirement income.
As an example, Bill’s pension gives
an annual income of $12,000; his
social security is about $13,000,
and his saving’s income is $12,500
(= 5% of his projected $250,000
savings) for an estimated total
retirement income of $37,500.
Project
Your Retirement Living Expenses:
Your necessary living expenses are:
·
Housing (rent, RE taxes, mortgage),
·
utilities (tel., electricity, gas,
oil),
·
transportation (car insurance, gas,
repair, replacement),
·
clothing and
·
taxes(10% of income).
Your optional annual expenses are
for:
·
entertainment (dinners, movies,
pocket change, etc) and
·
travel.
Add the total of your necessary
annual expenses as you incur them
now – if that’s where you’ll be
living in retirement. And total your
optional annual expenses, too.
Compare
Retirement Income to Retirement
Expenses
Now, compare your total income and
expenses. With this done, you can
see now where you come up short - or
not. You’ve got to know where you
are now so you can determine what
you can do about it!
An
example:
Bill has necessary annual expenses
are $5,000(housing), $4,200
(utilities), $5,600
(transportation), and $3,700 (taxes)
for a total necessary living expense
of $18,500. He estimates his
entertainment expenses at $16,000
(about $40/day). He’d like to see
how much would be available for
travel.
First, Bill total retirement income
from above is $37,500. His total
expense comes to $34,500 from both
his necessary living expenses and
his normal entertainment expenses.
Comparing these totals, his
retirement income exceeds his normal
living expenses by about $3,000. So
this is how much he has for the
travel he’d like to do.
With this approach, Bill – and you
- can see how tight or loose
retirement will be. If your
retirement circumstance is
unsatisfactory, then you can choose
to enhance your retirement income by
-
Saving
drastically more for the next
few years to enhance your assets
-
Working
part-time during some of your
retirement
And/or you can diminish your
retirement expense by
-
Reducing
unnecessary expenses
-
Moving to
where the cost of living is less
Determining how to modify your
retirement can be just a matter of
determining how much more you can
reasonably save for retirement. Or,
it may put you on a track to
redesign your retired life into a
new life style in a whole new place
that suits your budget and your
happiness.
Bill found that selling his house
and buying another in a cheaper
country – off shore - to enhance his
savings and drastically reduced his
expenses – see table. Selling his
house freed up about $50,000 in
equity after arranging to buy a
cheaper house elsewhere. This
produce another $2,500 (=5% x
$50,000) of annual income from
savings. His living expenses dropped
by $5,000 too by moving off shore.
Look how these changes modified his
income and expenses in retirement.
His total income increased by $2,500
to $40,000 while his leaving
expenses decreased by $5,000. Those,
together, added $7,500 to his
previous $3,000 to give a total
annual traveling budget of $10,500.
He now has plenty of money to do
some traveling wherever he wants to
go – or just to go back to ‘the
states’.
|
Retirement Income |
|
|
Pension |
Soc. Sec. |
Savings’ Inc. |
PT work |
total |
|
Current |
$ 12,000 |
$ 13,000 |
$ 12,500 |
$ - |
$ 37,500 |
|
Modified |
$ 12,000 |
$ 13,000 |
$ 15,000 |
$ - |
$ 40,000 |
|
Retirement Expense |
|
|
necessary |
entertainment |
Travel |
|
total |
|
Current
|
$ 18,500 |
$ 16,000 |
$ 3,000 |
|
$ 37,500 |
|
Modified |
$ 13,500 |
$ 16,000 |
$ 10,500 |
|
$ 40,000 |
What
about you?
Shane Flait is a writer and
educator. See more at
www.EasyRetirementKnowHow.com
