Question

What steps can you take now to ensure that you will have saved this amount by the time you retire?

Answer 1

Steps can be taken now to ensure targeted retirement funds:

1.Estimate the funds required to live after age of retirement. Calculating expenses or funds required for retirement is done with proper care. Funds calculated should incorporate estimated tax. The annual expenses like medical, insurance, repairs should be taken into consideration along with regular expenditure. The present expenditure could also become good resemblance of future expense.

2.Total annual or monthly funds can come from total saved funds or it can come from some guaranteed funds. The higher the contribution of total expense comes from guaranteed funds, less the amount required to be saved per month today. The guaranteed funds can be pension funds or any fixed amount which will surely exist in time of retirement.

3.The total difference between guaranteed funds and total monthly expense should be the value individual should target to obtain from the investment done. Investment required at age of retirement should be accumulated by regular savings. Regular savings should deposit in a reliable funds so that target value is met. Risk should analyze before investment.

4.Now, estimation of life expectancy should be done. More life is expected the more the amount required at time of retirement. The average life expectancy of a country can be good representative but keeping above average life expectancy would be ideal

5.Estimate the interest rate which savings would earn. Estimate the inflation rates for expenses which would go after retirement keeping it at higher end would cover worst case scenario.

6.Average interest rate should be estimated as per economic scenarios.

7.Now, one can calculate post retirement funds based on expenses (present value at time of retirement i.e. present value of expenses or annuities) and then that calculated funds should be the target fund for retirement. The monthly savings today should accumulate to reach the target retirement funds. The future value of annuity should be calculated and that will give the targeted funds.