How To Calculate A Future Annual Amount Needed For Retirement
It is fairly easy to learn how to calculate a future annual amount needed for retirement. You will need a financial calculator, in order to be able to determine exactly how much money you require for the number of years you plan on being retired. This can be a bit difficult, since you do not know exactly how long you will live once you retire, and you will not know the precise return your investments will earn over the years. The best you can do is to estimate both of these when you plug the data into your financial calculator.
- Some calculators require you to put in your current age, and the age that you plan on retiring. Make sure to input both of these correctly to arrive at an accurate annual amount needed for retirement.
- The next step is to type in the number of years you expect to be retired. It is better to overestimate by around 10 years than to fall short. So if you plan to retire at 65 years of age and live until you are 90, you would need 25 years of retirement income. Add 10 years to be optimistic, for 35 years total.
- Now you must figure what the annual rate of return will be for your investments. Since this is an unknown, be on the conservative side with your estimate. For example, you could use six percent to be safe. Hopefully your investments will produce a much larger return. You can experiment with the percentage as you see fit.
- If you have an existing amount already saved for retirement, put that in the required field. If you have not accumulated any savings to date, leave the field at zero. The future annual amount needed for retirement will still be calculated once you complete all of the steps.
- Some calculators have a field for your annual income and the percentage of this amount that you will save each year. You can estimate your future earnings if you prefer, and increase or decrease the savings percentage as you like. If the annual amount needed for retirement calculation is insufficient, this is one of the inputs you can experiment with to see what amounts are necessary to achieve the amount you want at retirement.
- The last inputs are usually the rate of inflation, and the percentage of your current annual income you would like to maintain. You could use three percent inflation as an average. If you make $100,000 per year now and you want to have that same amount to spend each year once you retire, you would use 100 percent as the income you want to maintain.
- Press the Calculate button to arrive at your total. If the figure is insufficient, change the inputs until you arrive at your intended future annual amount needed for retirement. If this figure is attainable, make sure to not deviate from the amount you are required to save each year, and you may hit your long term goal.