We no longer can rely solely on a company pension plan or Social Security to retire how we want to retire. Instead, you will have to depend on skillfully planning and investing, and whether you make good use of tax-advantaged savings plans such as 401(k)s and IRAs.
One of the things we can do is set ourselves up with our own business that is bringing in money on it’s own without much input from us. That has always been my dream, to get setup like that. I want something consistent and residual going by retirement. And I want it to be going soon enough that I can retire EARLY!
CNN Money gives us a few overview steps on how to get started on planning for our retirement:
Step 1: Estimate how much you will need. One rule of thumb is that you’ll need 70% of your annual pre-retirement income to live comfortably. That might be good if you have paid off your mortgage and are in excellent health when you retire. But, if you want to build your dream house, travel or get that Ph.D. you’ve always wanted…you may need 100% of your income or more. Keep in mind that health care expenses are likely to go up in retirement, though, insurance costs too.
Step 2: Second, figure out how you’ll meet those expenses. There are three main sources of retirement income:
(a) Social Security
(b) Pensions and Annuities
Start by determining your estimated Social Security benefits. (If you haven’t already received a statement in the mail, you can order one online or use an online calculator to make estimates based on expected earnings.)
Related: Will you have enough to retire?
Step 3: Add in any annual payouts you expect from an annuity or company pension.
If you think it’s not enough or might not be enough, it’s time to think about where the extra money will come from. You’ll probably need $15 to $20 in investment savings to cover each dollar of that shortfall. If your projected retirement expenses exceed Social Security and pensions by, say, $20,000 a year, that means you’ll need a nest egg of $300,000 to $400,000 to bridge the gap.
CNNMoney’s Retirement Savings Planner can help you come up with an estimate of how large a nest egg you’ll need. And our asset allocation tool will help you find the right mix of stocks and bonds to help you build it.
Please leave your thoughts or questions below. I would love to interact with you on your ideas!