Retirement – How Much Income You Need in it
Retirement – How Much Income You Need in it
Retirement planning in the post retirement phase incorporates two main variables for the financial dimension; the income stream and an accumulated retirement savings fund. There is a benchmark that exists for the income level that retires should have. This benchmark is to 80% of the retiree’s pre-retirement income level. This is an average benchmark and would be lower (minimum 70%) or higher, depending on your pre-retirement income.
For the pre-retiree who has several years to retirement, determining pre-retirement income may seem like an act for seers. However, using an arithmetic progression formula or financial calculator would make that simple enough. You would project on the basis of your salary increase or the increase in the cost of living. Only then would you be able to plan systematically. The least your target income should be is 80% of the projected figure.
Your family situation would either increase or decrease your retirement income level. Some retirees would still have dependents to which they are financially obligated. The greater your number of dependents, the greater your living expenses would be. Bearing in mind that retirement income is typically fixed; a retiree who has financial dependents should aim to maintain his pre-retirement income at least.
Other financial obligations such as mortgages and debts would also increase the amount of income you need during retirement. Financial obligations such as these would reduce your disposable income. The more significant your obligation, the greater your income need.
Tax structure would also have an implied effect of the income level that you need for retirement. If you have a high projected-income, then you would be paying more taxes. The effect of the combination of taxes and inflation risk would significantly reduce your income. If you projected figures without catering for taxes, you may need a higher income level than your projections indicate. It is important to keep in mind that retirement income projections should be based on real value and required net income figures.
You should have enough retirement income to maintain your standard of living. If not, you would find yourself regularly depleting your accumulated retirement fund. If you anticipate supplementing your income with savings, you need to increase your net income amount.
Some advisors argue that 80% of pre-retirement income is too high a figure, since expenses usually decrease during retirement. The counterpoint to this is that other expenses may arise during retirement, particularly medical expenses. If you do not have protection products and deep financial reserves, a higher income stream than the stated benchmark would be necessary.
There is no absolute or nominal amount of income that you should have for retirement. Your income need is subjectively determined by your earning ability and the standard of living that you seek to maintain. Some retirees who cannot afford to maintain their standard of living seek cheaper accommodation. Those who do not live above their means throughout their work life would not have to take such drastic action. Retirement income determination is largely subjective. The pre-retirement income benchmark is a useful method of assessing your minimum need however.
Darrell Victor is a financial services sales professional who specialises in retirement planning and insurance advice. To read his latest articles visit http://www.helium.com/user/show_articles/338815