How to Calculate Retirement Pay
Planning for retirement is an important goal. The money saved today will determine the quality of your retirement years. Set realistic goals when planning for retirement pay, recommends CNN Money. Figuring out annual income needs, based on current pay and desired lifestyle will assist in planning for retirement. It's also important to account for factors such as where you plan on living (and cost increases) during retirement.
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Instructions
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Calculate how much money is needed for retirement. This number will vary, based on lifestyle choices. However, according to MSN Money, most people need 75 to 85 percent of pre-retirement income. For example, if your pre-retirement income is $50,000, you will need $37,500 to $42,500 annually.
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Account for extra expenses. For example, a person who plans on traveling a lot will need extra income. Calculate how many trips you plan on taking each year. Add this expense to your annual retirement income. If the retirement income is $37,500 annually and you want to spend $5,000 annually on trips, the total annual retirement needed is $42,500.
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Factor inflation into the equation. Inflation hovers at about 3 percent each year. Factor this into the equation when calculating the necessary retirement income.
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Account for a change of location. If you don't plan on staying in the same location, the cost of living might increase. Check out cost of living comparisons to account for new location (see Resources). For example, if you plan on moving to a more expensive city, cost of living might increase 20 percent. In this case, income must be adjusted by 20 percent. If you currently need $37,500 to live, you will need $45,000 in the new city.
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Tips & Warnings
Evaluate your current retirement plan. If you face a shortfall of annual income for retirement, talk with your retirement plan adviser. Making additional monthly contributions can assist in meeting the shortfall and fulfilling retirement goals.
If you plan on retiring early, you might face penalties from early withdrawal against retirement plans. Consult your tax adviser for details.
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