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Planning for Retirement


Retirement is a hope and the dream of many people who are gainfully employed. It is the time in your life where you cease to need to work in order to gain income to live on. When retired, you are able to live off of income derived from investments and savings. Depending on you age group, the retirement age for full benefits stipulated by Social Security is 65 or 67. You must be at least 65 or 67 (again, depending on your age group) before you qualify to receive full monthly retirement payments from Social Security. Social Security also provides a lower benefit payment level for those retirees who want to begin receiving payments at ages as low as 62.

Many people feel they must wait until they qualify for Social Security before they retire. However, there is nothing magical about turning 65 or 67 years old. You can retire at any age provided that you have saved enough money to sustain you for the remainder of your life. If you do not have enough money, you will have to return to work (which is a terrible proposition as most employers are not looking to hire the elderly) or depend upon charity. Clearly, you will need a substantial sum of money before you can retire safely. Careful retirement planning is thus of the utmost importance.

Planning For Retirement Income

There are generally only two ways to accumulate enough money to retire. You can start out with a very large sum of money and then just live off the interest you derive from investing that money. Alternatively, you can invest small amount of money on a regular basis to amass larger sums. Most people are forced to go with the latter option involving regular savings and investment of small sums because they do not have a large sum of money to begin with.

Guideline 1: Save Early And Often.

The good thing about saving and investing for retirement is that the earlier you begin saving and investing the more money you will have when you retire. It takes most people 25 to 30 years to accumulate enough money to retire on. As the saying goes, it's a cinch if you do it by the inch. Your money will have more time to grow if you start sooner rather than later.

Guideline 2: Save Enough To Last You Through Your Entire Lifespan

An important and often overlooked aspect of retirement planning is sunset age, which is a polite term for life expectancy. The longer you actually live, the more money you will need to have available to you during retirement. You need to have an idea of how many years you are going to live because you will need to have enough money saved and invested to last you that long. You don't want to miscalculate this figure. If you run out of money before you run out of life, you will find yourself in the difficult situation of either having to become dependent upon charity and family, or having to go back to work in a job market that does not much value the elderly. No one really knows when they will die, but it is possible to make statistical calculations to help you estimate how many years you have left. This online lifespan prediction calculator offered by the University of Pennsylvania's Wharton Business School is a useful resource for making such predictions.

It is difficult to predict how long you will live, but it is not difficult to predict that you are likely to become less active as your retirement and your age continues. This typical graduated lessening of activity during a long retirement has an impact on how much income you will need during retirement. Many retirement planners now advise people to consider retirement income needs in two phases. The earliest phase of retirement is the active phase and generally requires up to 100% of pre-retirement income (meaning that you will need to have access to the same level of income you have been used to having prior to retirement). This active phase includes travel and vacations while health and age permits. At a later age, however, (75+?) you enter into a new, slower stage of retirement in which you travel less and your needs (apart from health care) become more modest. Income demands during this second stage of retirement may be as low as 50% to 60% of your pre-retirement income. By breaking your retirement income needs into stages in this manner, you may more accurately address your true income needs.