Saving for retirement isn’t always as simple as it sounds — there are numerous investment accounts, saving strategies, and factors involved when it comes to choosing the right approach for your particular situation. However, contrary to what many people assume, it is still possible to make the most of your retirement savings plan with a limited budget.
Proper retirement saving means first having a plan in place and sticking to it, working to build a healthy nest egg over time that will meet your greatest needs when it matters most.
Most people find it confusing to build a retirement plan that is right for them with so many variables that can come into play.
To start with, calculate your personal savings rate by adding together any existing net savings (or losses), and doing the same for your total take-home (after tax) income, then adding them both together. To calculate your personal savings rate, divide the first figure (your total amount of savings or debt losses) by the second number, which is your full take-home income.
This will help to give you a starting point for what steps to take next, as well as a general idea of how far you have to go.
Next, it is important to project into the future how much savings you will need by looking at the gap between your estimated future income and your retirement expenses.
In this case, if you expect an annual retirement expense of $65,000 per year based on your current living standards with $55,000 of guaranteed income, your gap will come out to be $10,000. This number can help you calculate your retirement savings and know how much you will need to withdraw from your savings and investment accounts annually (with an additional 50 percent of expenses covered by guaranteed income upon retiring).
If this model doesn’t seem like it will work, purchasing an annuity to generate more guaranteed income once you hit the age of retirement is another option to pursue. Continue reading to learn more about your investment options.